pacific 2020 : challenges and opportunities for...

• challenges and opportunities for growth

Pacific 2020

• challenges and opportunities for growth

• May 2006

Pacific 2020

© Commonwealth of Australia 2006

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General’s Department, Robert Garran Offi ces, National Circuit, Barton ACT 2600 or posted at http://www.ag.gov.au/cca.

ISBN 1 920861 742

Disclaimer: The views expressed in this report do not necessarily represent the views of any sponsoring individual or organisation involved in the Pacifi c 2020 project.

Published with funding from the Australian Agency for International Development (AusAID), Canberra, May 2006.

This document is online at www.ausaid.gov.au/publications. For further information about AusAID, contact:

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Printed by Pirion, Canberra

iii

Leaders believe the Pacifi c region can, should and will be a region of peace, harmony, security and economic prosperity, so that all its people can lead free and worthwhile lives.

Extracted from the Auckland Declaration of Pacifi c Islands Forum Leaders, 6 April 2004.

Foreword by the Hon. Alexander Downer, mpMinister for Foreign Affairs, Australia

In 2004, Pacifi c leaders adopted a vision for the Pacifi c as ‘a region

of peace, harmony, security and economic prosperity, so that all its

people can lead free and worthwhile lives’.

The island states of the Pacifi c, including Papua New Guinea and near

neighbour East Timor, face similar, often daunting, challenges that

work to thwart this vision. Weak economic growth, rapidly increasing

populations, poverty, unplanned urbanisation and swelling ranks of

young unemployed are problems that confront most of these nations in varying degrees.

None of these obstacles can be surmounted without sustained economic growth. Through a

process of extensive consultation with experts and practitioners from the region and beyond,

the Pacifi c 2020 initiative has identifi ed a range of policy options all directed at producing

better growth outcomes.

Pacifi c 2020 is a process of debate, dialogue and analysis funded and facilitated by Australia

as a contribution to overcome the challenges confronting the region. This report synthesises

the views of experienced people on policy priorities to stimulate growth. It offers regional

decision makers in government, the private sector and the wider community an opportunity to

examine and contest policy options that will help them to confront the challenges of the future.

Few, if any, governments, organisations or individuals will agree on the full suite of policy

options in this report. Most will fi nd favour; some will be contentious. It is my hope that all will

be debated and discussed in the spirit in which they are offered.

While individual policies may – and should be – contested, what is clear from Pacifi c 2020

is that there is broad agreement on some of the vital ingredients of growth. Good political

governance, a dynamic private sector, regional cooperation through the Pacifi c Plan,

integration into global markets and well-managed infrastructure all emerged from the

Pacifi c 2020 process as essential for growth.

Recently, I released a White Paper on Australia’s aid program, which sets the strategic blueprint

for its future direction. The White Paper recommits the Australian aid program to supporting

economic growth in the Pacifi c region and to deepening partnerships. Pacifi c 2020 is a

practical manifestation of these commitments.

The Pacifi c vision adopted by leaders in 2004 also states that ‘we seek partnerships with our

neighbours and beyond to develop our knowledge, to improve our communications and to

ensure a sustainable economic existence for all’. Australia believes in the Pacifi c vision, and

stands ready as a partner to see it realised. Pacifi c 2020 is one part of Australia’s contribution

towards it.

Pacifi c 2020

iv Pacifi c 2020

Foreword by the Right Hon. Sir Rabbie Namaliu, csm kcmg mpMinister for Foreign Affairs and Immigration, Papua New Guinea

The Pacifi c 2020 initiative has the strong support of the Government

of Papua New Guinea.

Close to twenty respected citizens from our government sector and

private sector have participated in the dialogue that has so far taken

place under the initiative, which is being funded by the Australian

Government’s AusAID. They have been joined by representatives from

other island nations.

This report is by no means the end of the initiative. It provides a blueprint for future debate

and the exchange of views on the policy areas and other options that are needed to strengthen

economic growth in our region for the common good of the people we represent.

As Foreign Minister, and on behalf of the Government of Papua New Guinea – the current chair

of the Pacifi c Islands Forum – I welcome the publication of this report and hope its content and

recommendations are given the wide attention they merit.

Foreword by Mr Greg UrwinSecretary General, Pacifi c Islands Forum Secretariat

I am very pleased to be able to welcome this Pacifi c 2020 report

coming, as it does, so soon after the launching of the Pacifi c Plan for

Strengthening Regional Cooperation and Integration.

Our leaders had identifi ed in the Pacifi c Plan our regional development

priorities, and I am glad to be able to say that the Pacifi c 2020 report

not only provides strong analytical support for those priorities, but

also makes practical suggestions about how they can be implemented.

Of particular signifi cance are those suggestions for possible action at the national level, where

implementation needs to take place if the Plan is to succeed. Indeed, I am particularly pleased

that the Pacifi c 2020 report recognises regionalism, and the Pacifi c Plan, as a necessary

strategy for addressing many of the common issues facing the small Pacifi c island countries.

This report lays bare, for all to see and to be concerned about, the risks of muddling on, and

it does so in a way that complements and strengthens our region’s resolve to move forward

together in meeting our common challenges. I congratulate all those who have been involved

in the production of such a well prepared and insightful report.

vPacifi c 2020

Foreword by Dr Jimmie RodgersDirector General, Secretariat of the Pacifi c CommunityMember of the Pacifi c 2020 Steering Committee

Not too often do we have a comprehensive developmental exercise

that looks at lessons of the past and the trends and realities of today

to forecast possible developmental scenarios and policy options for

tomorrow.

The Pacifi c 2020 initiative, while not claiming to provide all the

answers to the increasing challenges facing Pacifi c island countries

in addressing economic growth, does represent what is possibly the

fi rst comprehensive piece of work involving more than one hundred and fi fty practitioners and

experts – mostly from Pacifi c island governments, private sector and civil society – to seriously

assess the specifi c challenges relating to the most important productive sectors and economic

factors affecting growth.

It is important to note that Pacifi c 2020 is not a set of policy prescriptions; rather it is a menu

of policy options resulting from vigorous analysis and provides an excellent starting point

for further analysis, adaptation or adoption – especially for countries that may not have the

resources to conduct similar analysis.

The third part of the Pacifi c Vision, adopted by leaders in 2004, states that ‘we seek a Pacifi c

region that is respected for the quality of its governance, the sustainable management of its

resources, the full observance of democratic values, and for its defence and promotion of

human rights’.

It is my fi rm belief that the policy options presented in the Pacifi c 2020 report proves an

important starting point to help Pacifi c island countries move toward achieving this vision.

I commend it for serious study and consideration by Pacifi c island leaders, government and

stakeholders as an important tool they could add to their own work to help take the Pacifi c

region forward in economic growth and sustainable development for a better future.

viiPacifi c 2020

forewords

Minister for Foreign Affairs, Australia iii

Minister for Foreign Affairs and Immigration, Papua New Guinea iv

Secretary General, Pacifi c Islands Forum Secretariat iv

Director General, Secretariat of the Pacifi c Community v

Preface xi

Acknowledgements xii

Abbreviations and acronyms xiii

Map xiv

Summary 1

part one: overview

1 Introduction 11

Background 11

Coverage 12

Report structure 14

2 Pacifi c growth 17

Basic characteristics 17

The growth record 19

3 Pacifi c challenges 25

Employment and joblessness 25

Other challenges: health, education, climate change, urbanisation and poverty 29

4 Pacifi c scenarios 33

Doomsday scenario 33

Muddling-on scenario 33

Growth scenario 34

Which scenario will eventuate? 36

5 Key fi ndings 43

Growth factors 43

Productive sectors 47

6 Common themes 55

Governance and institutions 55

Infrastructure 57

Integration and regional cooperation 60

Implementation 62

7 Conclusion 67

Contents

viii

part two: growth topics

8 Growth factors 73

Investment and private sector development 73

Land 81

Employment and labour markets 89

Political governance 94

9 Productive sectors 101

Agriculture 101

Fisheries 108

Forestry 115

Mining and petroleum 120

Tourism 125

Annexes

A Contributors to Pacifi c 2020 131

B Importance of the productive sectors to the Pacifi c island countries 137

References 141

boxes, fi gures and tables

Box 1.1 Pacifi c 2020: the process 12

Box 2.1 Cook Islands, Samoa and Tuvalu: bucking the trend 21

Box 2.2 Improved economic performance of Pacifi c island countries in recent years 22

Box 2.3 Mauritius: why has it been so successful? 23

Box 3.1 Life in a PNG urban squatter settlement 30

Box 4.1 Do smallness and remoteness matter? 38

Box 4.2 Fiji success stories 39

Box 4.3 The Pacifi c’s ‘small island states’ 41

Box 6.1 The contribution of roads to the development of Papua New Guinea:

a personal account 58

Box 6.2 Missing out on the telecom revolution? 59

Box 6.3 The Pacifi c Plan 60

Box 6.4 Can the Pacifi c learn from East Asia? 63

Box 6.5 Promoting dialogue in the Republic of the Marshall Islands 64

Box 8.1 Public–private sector dialogue in Fiji on regulatory reforms 79

Box 8.2 Public sector restructuring and privatisation in Samoa 80

Box 8.3 Land tenure and development: the global experience 82

Box 8.4 Models for land dealings in the Pacifi c 85

Box 8.5 Weaknesses in land administration in Papua New Guinea 88

Box 8.6 How to deliver vocational training: the Pacifi c network of

maritime training institutions 91

Pacifi c 2020 • contents

ixPacifi c 2020 • contents

Box 9.1 The palm oil industry in Papua New Guinea 103

Box 9.2 Finding new models for delivering extension services:

Papua New Guinea’s village extension worker network 106

Box 9.3 The impact of competition policy on sectoral outcomes:

the example of coffee and cocoa 107

Box 9.4 Regional fi shery institutions 112

Box 9.5 Samoa Fisheries Project 115

Box 9.6 Vanuatu and Fiji: moving towards sustainable natural forestry 118

Box 9.7 Community plantations in Solomon Islands 119

Box 9.8 Timber certifi cation 120

Box 9.9 Criteria for government compliance with the Extractive

Industries Transparency Initiative (EITI) 123

Box 9.10 Airline deregulation boosts tourism: the example of Vanuatu 127

Figure 2.1 GDP per person for selected Pacifi c island countries and Mauritius,

1981 and 2004 23

Figure 3.1 Male youth joblessness in the Pacifi c region 26

Figure 3.2 Annual growth in non-agricultural employment required between

2004 and 2020 to prevent joblessness from worsening 28

Figure 3.3 Average annual growth in GDP per person and reduction in the poverty

rate in East Asia, South Asia and sub-Saharan Africa from 1981 to 2001 31

Figure 6.1 Trade in goods and services 61

Figure 8.1 Access to electricity in Pacifi c and Caribbean island countries 75

Figure 8.2 Ease of doing business in Pacifi c island countries 78

Figure 9.1 Projected log production in Solomon Islands to 2050 117

Table 2.1 Basic characteristics of Pacifi c island countries, 2004 18

Table 2.2 Annual average growth rates in population, GDP and GDP per person,

1990–2004 20

Table 3.1 Youth aged 0–14 years as a percentage of population, 2004 27

Table 4.1 Aid and remittances to Pacifi c island countries, 2003 35

Table 4.2 Projected GDP per person in Pacifi c island countries in 2020 37

Table 5.1 Relative importance of selected sectors to GDP in Pacifi c island

countries, 2002 48

Table 6.1 Governance indicators for Pacifi c island countries, 2004 56

Table 8.1 Land tenure arrangements in Pacifi c island countries 81

Table 9.1 Average annual growth in agriculture in Pacifi c island countries

from 1995 to 2003 104

Table 9.2 The importance of fi shing to Pacifi c island countries, 1999 109

Table 9.3 Forest cover in Pacifi c island countries 116

Table 9.4 Tourism and tourist growth in Pacifi c island countries 126

xi

Preface

The Pacifi c 2020 project is an initiative of the Australian Minister for Foreign Affairs,

the Hon. Alexander Downer, MP, and was developed and implemented by AusAID, the

Australian Agency for International Development. This report, Pacifi c 2020: challenges and

opportunities for growth, was produced as part of the Pacifi c 2020 project in collaboration

with numerous individuals and organisations from throughout the Pacifi c islands region and

further afi eld.

Pacifi c 2020 has two parts. Part One provides a self-standing overview of the report’s context,

motivation, key fi ndings and common themes. Part Two provides details on each of the nine

growth topics studied as part of the project. Part One is recommended for all readers. Those

with particular interests in the specifi c growth topics are also directed to Part Two.

Pacifi c 2020

xii

Acknowledgements

Many people and organisations from the Pacifi c and throughout the world have contributed

to the Pacifi c 2020 project. This project has brought together representatives from many

sectors of the regional community, including governments, the private sector, non-government

organisations, donors, civil society and academia.

AusAID would like to thank all those individuals who contributed their time and expertise to

the development of this report (see Annex A for a full list). We would also like to thank the

many organisations who committed time, resources and staff to the project, including the

Pacifi c Islands Forum Secretariat, the Secretariat of the Pacifi c Community, the World Bank,

the Asian Development Bank, the New Zealand Agency for International Development, the

Australian Treasury and Pacifi c island governments.

Pacifi c 2020

xiii

Abbreviations and acronyms

AIDS acquired immune defi ciency syndrome

AusAID Australian Agency for International Development

EEZ exclusive economic zone

FAO Food and Agriculture Organization of the United Nations

FSM Federated States of Micronesia

GDP gross domestic product

MP member of parliament

HIV human immunodefi ciency virus

OECD Organisation for Economic Co-operation and Development

PIC Pacifi c island country

PNG Papua New Guinea

RMI Republic of the Marshall Islands

SPS sanitary and phytosanitary

UNESCAP United Nations Economic and Social Commission for Asia and the Pacifi c

UN United Nations

US United States of America

WCPFC Western and Central Pacifi c Fisheries Commission

Pacifi c 2020

1

Summary

Pacifi c 2020

The overall performance of the Pacifi c island countries in the course of the past two decades

has been poor. The region suffers from high unemployment and joblessness, and governments

are failing to meet the expectations of their citizens. Several countries suffer from social or

political instability, or serious crime. Some face daunting health or environmental challenges.

Without an upturn in economic growth, the future for these countries is at best uncertain and

at worst bleak. What are the long-term growth prospects for Pacifi c island countries? And what

can be done today to improve these prospects?

Pacifi c 2020 aims to answer these questions. Based on extensive consultations, it presents

a mix of growth opportunities and challenges to stimulate dialogue and debate. It is not an

action plan, but a call to action and a resource for Pacifi c island governments that want to

accelerate and better manage growth. It is written for all developing country members of the

Pacifi c Islands Forum, as well as East Timor.

Pacifi c 2020 is based on the study of nine topics: four crosscutting ‘growth factors’

– investment (or capital), labour, land and political governance – and fi ve important ‘productive

sectors’ – agriculture, fi sheries, forestry, mining and petroleum, and tourism.

Pacifi c growth, challenges and scenarios

The growth performance of the Pacifi c islands has been poor.

The region has experienced low or negative growth in income per person. In the period

1990–2004, four of the fi ve Micronesian countries had negative growth and, of the Melanesian

countries, only Fiji achieved an average growth of more than 1 per cent a year. In general, the

Polynesian countries have done better, but only when compared with the rest of the region.

Their growth is well below the average for developing countries, and much less than that

achieved by Mauritius, a comparable small island state in another part of the world.

2

There are signs of hope. Cook Islands, Samoa and Tuvalu have delivered sustained, moderate

growth since the mid-1990s or earlier and data since 2003 show improved growth and

macroeconomic outcomes for a number of Pacifi c island countries.

Without a sustained acceleration in growth, the Pacifi c will be unable to meet its

pressing challenges.

The Pacifi c islands are facing a number of serious challenges. The most immediate and

widespread are unemployment and joblessness – leading to poverty, frustration and,

potentially, social instability. The region also faces serious and worsening health problems,

environmental challenges such as climate change, and rapid urbanisation.

If the Pacifi c island countries are to meet these challenges, it is essential that their economies

grow. Economic growth creates wealth, which can be shared between the private and public

sectors, thereby strengthening both. Only growth will create employment, and only growth

will create the revenue that the public sector needs to deal with challenges such as the

environment and health. Economic growth will not be suffi cient to solve all problems facing

these countries, but it is necessary. No country has succeeded in reducing poverty without it.

Whether the Pacifi c achieves higher growth remains to be seen. If not, the countries of the

region will collapse or at best ‘muddle on’.

Some commentators foresee a ‘doomsday’ scenario where the Pacifi c islands region completely

fails to meet its mounting challenges. Others foresee ‘muddling on’, where collapse is prevented

by the continuation of aid and migration opportunities. Neither of these scenarios is comforting.

Pacifi c 2020 also highlights a third scenario – rapid growth – in which a range of reforms

along the lines outlined in this report is undertaken and where, as a result, economic growth

accelerates. This scenario is the only one that enables the Pacifi c to meet its challenges.

Higher growth is possible.

Pacifi c island countries have natural disadvantages imposed by their small sizes and

remoteness, but these can be overcome and high growth achieved by all except perhaps

some of the tiniest. While different countries in the region face different challenges, and

some countries have better growth prospects than others, their one commonality is that

ultimately their success in generating growth and in meeting their many challenges depends

on the decisions their governments make. There are enough success stories in the Pacifi c and

elsewhere to indicate that the countries of the region can prosper, given effective economic

management and sound policies.

The reasons for the limited success of past economic reform efforts in the Pacifi c are now

better understood. Reforms need to be persevered with and go beyond stabilisation to

Pacifi c 2020 • summary

3

address deeper structural and institutional weaknesses. All of the Pacifi c 2020 studies and

consultations taken together suggest a two-pronged approach to reform: structural policy

reforms and sensible public investment where a relatively quick growth impact can be

expected (for example, in infrastructure), combined with more attention to the tough,

long-term growth constraints (such as political governance and land tenure).

Pacifi c 2020 common themes

Four themes emerged from the study of the nine Pacifi c 2020 growth topics as critical for

growth. These are governance and institutions, infrastructure, integration and regional

cooperation, and implementation.

International indicators show that the Pacifi c suffers from weak governance. The Pacifi c 2020

studies revealed that this is holding growth back.

Reform strategies need to give much more attention to institutions than they have to date.

Government institutions responsible for delivering law and order and macroeconomic stability

should be strengthened, and governments become more transparent. Market institutions

need to be allowed to work better, by undertaking reforms that improve infrastructure, reduce

regulatory barriers and improve the protection of property rights, especially in relation to

land. Strengthening environmental management and educational institutions also emerged

as priorities. Strengthening political institutions has to be the top priority because the success

of attempts to strengthen other institutions normally depends on the support they receive

from politicians.

All of this is, of course, easier said than done, and solutions will have to come from within.

The key to progress will be, as Pacifi c leaders themselves are now articulating, nurturing

governance in a Pacifi c context rather than treating it as a foreign impost.

Infrastructure (transport, telecommunications, power) emerged repeatedly from the Pacifi c

2020 studies and consultations as a fundamental constraint to growth in the region.

From one point of view, the challenge of improving infrastructure is a subset of the broader

problem of improving institutional performance. Yet infrastructure emerged so consistently

from the Pacifi c 2020 studies as a fundamental constraint to growth in the region that it

demanded to be highlighted separately.

Infrastructure development in the Pacifi c island countries lags well behind that in the

Caribbean, due not solely to geography but also to poor management. For example, the Pacifi c

island region seems to be missing the mobile telecommunications revolution that is sweeping

much of the developing world, bringing large benefi ts to producers and consumers alike.


4

Better infrastructure is not just a matter of more public funding; of equal or more importance

are infrastructure policies and their implementation.

Integration and regional cooperation are not options for the Pacifi c island countries, but

necessities borne of their small sizes.

It can be especially diffi cult for small countries to develop effective institutions, so taking a

regional approach to institution building makes a lot of sense. The Pacifi c 2020 studies found

that efforts to develop each of the productive sectors would yield better outcomes if regional

opportunities were embraced.

The recently approved Pacifi c Plan embraces not only regional cooperation, but also economic

integration. Given the importance of remittances in the Pacifi c, the challenge of integration

extends beyond trade in goods to integration in global labour markets. This is especially

important for the microstates that lack domestic economic opportunities and for Melanesia with

its rapid population growth. One path to economic integration is through the negotiation of free

trade agreements covering goods and services – agreements between Pacifi c island countries,

but more importantly with developed trading partners such as Australia and New Zealand.

Perhaps the single clearest message from Pacifi c 2020 is that poor implementation is the most

serious constraint to successful reform and thus rapid growth.

Many commented that the solutions are known, but not acted on or persevered with.

Implementation will improve if reform plans are prioritised and realistic, if monitoring

frameworks are in place, and if there is ongoing consultation. But, ultimately, implementation

is a function of ownership.

What can be done to improve reform ownership? Reforms should be adopted as a long-term

project with economic growth and prosperity as the objective. They should not be thought of

as one-time efforts that can be engaged in without sacrifi ce. Further, Pacifi c islanders need to

have reasonable hope that they will benefi t from the reforms. Not only should the benefi ts of

reform be widely shared, but its unwanted consequences should be managed and contained.

Finally, successful reforms need ‘drivers of change’ – those who have the political will, show

strong leadership and are able to mobilise local resources in a consensual way.

Pacifi c 2020 key fi ndings: growth factors

Four of the nine Pacifi c 2020 growth topics are crosscutting ‘growth factors’ that are of

importance to economic growth whatever the sector. Three of these are the traditional

factors of production: investment (or capital), land and labour. The fourth is political

governance, chosen because of its infl uence on all other aspects of government performance,


5

which in turn is a critical determinant of both the supply and the productivity of the traditional

factors of production.

Private sector investment will drive growth if business costs are reduced.

Ultimately, it is private sector investment that will drive economic growth – not only by

adding to the capital stock, but also by increasing entrepreneurial capacity. Several countries

have improved their macroeconomic and fi scal performance but this in itself may not be

adequate if action is not taken to tackle problems that exacerbate rather than ameliorate

the problems of size and isolation. Six reform priorities were identifi ed by the Pacifi c 2020

process: tackling the underlying problems of political instability, law and order, and corruption;

fi lling the infrastructure defi cit; developing fi nancial markets; reforming legal and regulatory

systems; reforming state-owned enterprises; and working with the private sector to build

dialogue and capacity.

Land tenure reform is a sensitive issue, but one that requires demand-driven,

incremental change.

In spite of the diffi culties involved in land tenure reform, change is essential, not only to

encourage economic growth, but also to promote social stability in the face of increasing

demographic pressures and the changing aspirations of Pacifi c islanders. Given both the

importance of customary ownership in the Pacifi c and the sensitivity of land tenure reforms, a

guiding principle for land reform should be to change land tenure only to the extent necessary.

Blending ownership at the group level with long-term lease agreements covering the use

of land by individual developers points the way forward. Each country will have to work out

its own solution, but the Pacifi c 2020 process identifi ed four general directions for change:

improving the recording of land rights; establishing a cost-effective legal framework for land

dealings; establishing land dispute settlement machinery that makes greater use of arbitration

and mediation; and improving land administration services.

The fundamental requirement for more employment is faster economic growth, but

labour-related reforms and actions are also needed.

Labour markets are relatively fl exible in the Pacifi c island countries but labour productivity

can be boosted by a number of employment-related reforms. Better provision of basic health

and education services and greater emphasis on effective vocational training will protect and

build human capital. Labour market discrimination needs to be combated. Integration with

international labour markets will expand employment opportunities and increase remittance

fl ows. Opportunities for self-employment can be boosted by removing regulatory barriers in

the informal sector and providing basic business training.


6

Improving political governance is a long-term challenge, but perhaps the most important one

facing the Pacifi c between now and 2020.

Current political arrangements in the Pacifi c are not delivering the desired economic outcomes.

Pacifi c island countries have achieved nominal sovereignty, but their effective sovereignty

is often in decline as they fi nd it increasingly diffi cult to deliver basic services, including law

and order. Without more effective political leadership, sustained growth will remain elusive.

How this can best be achieved is up to individual countries to decide, but the way forward

will have to involve actions both on the ‘supply side’ of political governance (strengthening

electoral systems, parliaments and oversight institutions) and on the ‘demand side’ (through

partnerships with civil society to improve the quality of political governance).

Pacifi c 2020 key fi ndings: productive sectors

The fi ve productive sectors studied as part of the Pacifi c 2020 process – agriculture, fi sheries,

forestry, mining and petroleum, and tourism – provide a wide-ranging coverage of the Pacifi c

island economies.

Agricultural productivity has to increase if living standards are to improve in the Pacifi c.

Agriculture provides more employment than any other sector in the Pacifi c island countries.

It presents many opportunities for growth, domestically and for export, but is operating well

below potential, if not stagnating. Constraints include infrastructure and the other crosscutting

issues highlighted in the previous section. Sector-specifi c priorities that emerged are: improving

farmer access to the latest technology and market information through industry-led research and

extension, and contracting out extension services; removing distortions such as forcing farmers

to sell to particular buyers; and facilitating market access through improved quarantine services.

The management of fi sheries needs to improve to allow better use of the region’s massive

oceanic and coastal resources.

Fisheries in different settings provide considerable employment and government revenue to the

Pacifi c island countries. Oceanic fi sheries are approaching the limits of sustainability and coastal

fi sheries face environmental risks. These can be managed only if the governance of the sector is

improved by, for example, publicly disclosing licensing details. The value of fi shery access rights

can also be increased through a variety of competitive strategies. Partnerships with the private

sector should be strengthened, especially for training. With respect to coastal fi shing, the secret

to sustainability is greater community involvement along the lines of the Fiji and Samoa models.

Natural logging is in crisis, but there are growth opportunities in forest plantations.

If current practice continues, the major accessible natural forests of the Pacifi c island region are

likely to be logged out by 2020 or earlier. To put forestry on a sustainable footing will require a


7

fundamental turnaround in sectoral governance arrangements, including better implementation

of existing policy and legal requirements. Plantations present a more optimistic scenario.

The establishment of large plantations will require issues associated with land tenure to be

addressed, but community-level plantation forestry holds considerable potential.

Mining and petroleum have the potential to generate large and increasing revenues for some

Pacifi c island governments but, without good governance, the sector’s development will lead

to environmental damage, corruption and instability.

Papua New Guinea, Solomon Islands and East Timor have signifi cant mineral and petroleum

reserves and other Pacifi c island countries may fi nd deep seabed mining to be an important

future source of revenue. If mineral and petroleum resources are to be turned into positives,

mineral revenues will have to be shared equitably and transparently, both between the main

stakeholders and across generations. Government policy frameworks and administrations that

deal with the extractive industries need to be strengthened.

Tourism is the type of economic activity in which the region can compete globally and into

which it needs to diversify to promote employment.

Tourism provides great scope for differentiated or exclusive products, which allow the charging

of high prices to cover the costs and risks that small remote islands face. Fiji and Cook Islands

provide good examples of what can be achieved. But to date the number of tourists visiting

the Pacifi c islands has grown only slowly. Potential tourists are deterred by poor infrastructure,

particularly the high cost of travel. Political and social instability and health and crime risks

also diminish the region’s allure. Tackling these external constraints has to be the top priority

for any Pacifi c government that wants to boost tourism. Sector-specifi c imperatives include:

developing national tourism policies that promote cross-sectoral coordination and address

concerns around tourism relating to the environment and culture; providing training in

tourism-related professions; and improving marketing and data.

In conclusion

Can the Pacifi c island countries prosper by accelerating and sustaining economic growth? There

are many constraints, including the land tenure system, limited private sector capacity, high

costs and the fragmented political landscape. Yet, the Pacifi c 2020 process also brought out

the huge potential for development that exists across the region. Whether the opportunities for

growth are grasped and properly managed will come down to the choices of country decision

makers and, ultimately, to whether sustained growth is pursued as a central political objective.

Success will mean different things for different countries, but there is certainly a success story

to be lived out by every Pacifi c island country, from the largest to the smallest.


part one

Overview

part one provides the context, key findings and common themes of pacific 2020.

11Pacifi c 2020 • overview

chapter one

Introduction

Background

The overall performance of the Pacifi c island countries in the course of the past two decades

has been poor. The region suffers from high unemployment and joblessness, and government

services fail to meet public expectations. Several countries suffer from social or political

instability, or serious crime. Some face daunting health or environmental challenges. Without

an upturn in economic growth, the future for these countries is at best uncertain and at worst

bleak. What are the long-term growth prospects for Pacifi c island countries? And what can be

done today to improve these prospects?

By addressing these questions, Pacifi c 2020 aims to stimulate dialogue and debate on actions

to accelerate, manage and sustain economic growth. It contains a wide-ranging analysis

of growth constraints, and a large number of suggested reforms and measures that can be

implemented now to help shift the Pacifi c island countries onto a sustainable growth trajectory.

It presents a mix of immediate opportunities and longer term challenges. Pacifi c 2020 is not an

action plan. Plans for growth will need to be much more country-specifi c and prioritised than is

possible from an exercise such as this. Rather it is a call to action, and a guide and resource for

Pacifi c island governments to help them promote economic growth and prosperity.

This is not the fi rst attempt to provide an overview of long-term growth issues and options for

the Pacifi c. Pacifi c 2010, written in 1993 by a group of Australian National University academics

(with AusAID support), also took a long-term view, though with a focus on demography rather

than economic policies. Recent publications of the Asian Development Bank (2004b), the

World Bank (2005b) and the United Nations Development Programme (1999) have provided

comprehensive reviews of the economic and policy challenges facing the Pacifi c. What sets

Pacifi c 2020 apart is the consultation process behind it. As summarised in Box 1.1, this

involved a broad range of decision makers and experts from across the region.

Leaders believe the Pacifi c region can, should and will be a region

of peace, harmony, security and economic prosperity, so that all its

people can lead free and worthwhile lives.

Auckland Declaration of Pacifi c Islands Forum Leaders, 6 April 2004

12

box 1.1 • pacific 2020: the process

Pacifi c 2020 (the report) is the culmination of an extensive consultation process.

Academic or sectoral expert authors with extensive knowledge of the Pacifi c prepared a

series of short input papers to stimulate debate on the nine Pacifi c 2020 growth topics:

investment, labour, land, political governance, agriculture, fi sheries, forestry, mining and

petroleum, and tourism.

Using the input papers as a basis for discussion, nine roundtable meetings were held

in mid-2005, one for each topic. More than 130 practitioners and experts from regional

governments, the private sector and civil society, as well as representatives from aid donors

and multilateral institutions, attended the roundtables. Roundtable participants were asked

to focus on the main constraints to economic growth in their sector as well as on priority

policy options that could best deal with those constraints and promote economic growth.

Drawing on each roundtable discussion, the academic and sectoral experts prepared nine

background papers. Additional research was undertaken by AusAID staff and additional

background papers were produced by the World Bank (on growth frameworks) and by the

Australian Treasury (on regional agreements). The background papers are included at the

start of this report’s reference list and are available on AusAID’s website <www.ausaid.gov.au>.

The Pacifi c 2020 background analyses, as well as this report itself, were subjected to

peer review. A steering committee of AusAID offi cials and senior representatives from

government, the private sector, regional organisations and civil society in the Pacifi c island

countries provided oversight and guidance for the project.

All involved in the Pacifi c 2020 process are listed in Annex A.

Coverage

Pacifi c 2020 is written for all developing country members of the Pacifi c Islands Forum, as

well as East Timor because of its proximity to the Pacifi c and the similarity of many of its

development challenges. As a short-hand expression, these 15 countries are generally referred

to as the Pacifi c island countries. The standard subregional groupings of Melanesia, Polynesia

and Micronesia are used (see Table 2.1). For convenience, East Timor is grouped with Melanesia.

Pacifi c 2020 is based on the study of nine growth topics: four crosscutting ‘growth factors’ and

fi ve ‘productive sectors’. The report highlights key fi ndings from each of the nine topics and

brings out their common themes.

Pacifi c 2020 • chapter one introduction


The four growth factors are investment (or capital), labour, land and political governance.

The fi rst three are the traditional ‘factors of production’ – those inputs that are essential

for growth, whatever the sector. The report goes beyond these three because of the

importance of the quality of institutions or governance in a country for long-run economic

growth. Since ultimately it is the country’s political system that determines how well other

institutions of government function, Pacifi c 2020 targets political governance as the fourth

growth factor.

The fi ve productive sectors are agriculture, fi sheries, forestry, mining and petroleum, and

tourism. Between them, they provide a wide-ranging overview of the Pacifi c island economies.

Agriculture still provides livelihoods and social security for most people in the region. In

some settings, it is also an important export sector. Mining and forestry draw on the natural

resources of the countries. One or the other is important for several of the island countries,

and both sectors can generate signifi cant foreign exchange and government revenues.

Fisheries in different settings provide employment and government revenue. Tourism is a

sector in which Pacifi c islands can compete in global markets.

Some of these sectors offer abundant growth opportunities. Agriculture, fi sheries and tourism

clearly fall into this category. However, they all involve important management challenges. The

logging of natural forests is currently being carried out in an unsustainable way. Unsustainable

practices are also a risk for fi sheries. Mining is, by defi nition, an unsustainable activity. The risk

in this case is that the extraction of minerals, without effective governance, will not only cause

local environmental damage, but also generate prosperity only in the short run and do nothing

to lay the foundations for long-term growth. Pacifi c 2020 does not take a simplistic approach

to growth. It looks both at generating growth and at managing its impact.

This choice of topics emerged from the consultation process. Although the resulting report

is wide-ranging, it does not try to be comprehensive. There are important issues that are not

analysed in the report, in part because they are covered elsewhere and in part because the

consultation process indicated a preference for a more selective approach. The studies of

the nine Pacifi c 2020 growth topics confi rmed the importance of environmental and health

issues for the region, but did not cover them in detail.1 Nor does the report provide a thorough

treatment of all governance issues, which could range from law and order to macroeconomic

management (Asian Development Bank 2004a; Saitala 1999). But Pacifi c 2020 does focus

on what is perhaps the underlying governance issue and one that certainly has not received

enough attention in discussions of growth – namely, political governance.

It is impossible to foresee all of the challenges that will emerge between now and 2020.

Many of today’s challenges were unknown at the time the Pacifi c island countries became

independent – HIV/AIDS, to give just one example. The underlying challenge, which

1 On environmental challenges facing the Pacifi c, see World Bank (2006b). On human development, see United Nations Development Programme (1999) and World Bank (2006c).

14

Pacifi c 2020 does address, is to ensure that policy frameworks are robust and economies

strong enough to enable the countries to meet whatever challenges the future presents them.

Report structure

The report is divided into two parts. Part One is a self-standing overview. Part Two addresses

each of the nine growth topics in more detail. Part One is recommended for general readers

and Part Two for those with a more specifi c interest in particular topics.

Part One is made up of seven chapters. Following this introductory chapter, Chapter 2 sets

out the Pacifi c’s disappointing growth record to date. Chapter 3 examines the challenges the

Pacifi c is facing, and the need for higher growth to meet those challenges. Chapter 4 considers

whether higher growth can be achieved, and presents three different scenarios for the future.

Chapters 5 and 6 contain the analysis and options that will help realise a growth scenario

for the Pacifi c. Chapter 5 provides a short summary of fi ndings on each of the nine Pacifi c

2020 growth topics, and Chapter 6 presents the four themes that emerged across the nine.

Chapter 7 concludes.

The fi nal two chapters of the report make up Part Two. They detail the fi ndings that emerged

from the Pacifi c 2020 process in relation to, fi rst, the four growth factors (Chapter 8) and then

the fi ve productive sectors (Chapter 9).

Pacifi c 2020 • chapter one introduction


This chapter provides the context for Pacifi c 2020. It fi rst provides some background for those

less familiar with the Pacifi c islands region, and then sets out the disappointing growth record

of the Pacifi c islands to date.

Basic characteristics

The Pacifi c island countries vary enormously (Table 2.1). Of the countries covered in this report,

seven have populations of less than 100 000 and seven have populations of between 100 000

and 1 million. Papua New Guinea stands by itself with a population of 5.8 million, 65 per cent

of the combined population of the 15 countries. Population density varies from 480 people per

square kilometre in Nauru to only 7 in Niue.

Incomes also vary greatly. Palau and Cook Islands have an average income (gross domestic

product) per person of US$60002 or more, making them upper middle-income developing

countries, comparable with countries such as Mexico and Seychelles. Most of the Pacifi c

island countries – Fiji, Federated States of Micronesia, Republic of the Marshall Islands,

Nauru, Samoa, Tonga, Tuvalu and Vanuatu – have an average income per person in the range

US$1300–3500, making them lower middle-income developing countries, comparable in

income levels with Thailand. Papua New Guinea, Solomon Islands, Kiribati and East Timor,

which have an average income per person of US$700 or less, are much poorer and fall into the

category of low-income countries.3 The better-off countries are much more urbanised (Palau

and Cook Islands have two-thirds or more of their populations living in urban areas) whereas

the poorer countries are very largely rural (three-quarters or more of the populations of East

Timor, Papua New Guinea, Solomon Islands and Vanuatu live in rural areas).

chapter two

Pacifi c growth

2 When comparisons are made, monetary values are quoted in US dollars, the currency in which they appear in the World Development Indicators.

3 Since Pacifi c island countries get signifi cant resources from remittances and aid, gross national income per person

may be a better indicator than gross domestic product per person, which is used here because of its availability for a

larger number of countries. For those countries for which data are available for 2004, Kiribati had the highest ratio of

gross national income to gross national product, 1.5:1. In East Timor this ratio is 1.4:1, but is increasing sharply due to

petroleum tax and royalty payments.

18 Pacifi c 2020 • chapter two pacifi c growth

Social indicators also differ greatly (Table 2.1). Adult literacy is high (90 per cent or more)

except in the Melanesian countries of Papua New Guinea (57 per cent), Solomon Islands

(30 per cent) and Vanuatu (34 per cent) and in East Timor (43 per cent).

All of the Pacifi c island countries are highly vulnerable to shocks – natural, political and

economic. One composite indicator of vulnerability ranks Vanuatu as the most vulnerable

of 111 countries rated. Fiji is rated 8th most vulnerable, Solomon Islands 11th, Samoa 20th,

Papua New Guinea 30th and Kiribati 59th.4

table 2.1 • basic characteristics of pacifi c island countries, 2004

PopulationPopulation

densityUrban

population Literacy rateaGDP per

person

’000 people/km2 % total% adult

population US$

Melanesia & East Timor

Fiji 840 46 52 93 3 098

Papua New Guinea 5 800 13 13 57 695

Solomon Islands 521 18 17 30 513

Vanuatu 213 17 23 34 1 472

East Timor 925 62 8 43 366

Polynesia

Cook Islands 20 86 70c 94 7 549c

Niue 1.8b 6.9b 33b 95 4 364d

Samoa 181 65 22 99 2 030

Tonga 102 127 34 99 2 087

Tuvalu 11 373 … 95 1 346d

Micronesia

Kiribati 90 123 49 93 633

Marshall Islands, Rep. of 61 337 67 92 1 803

Micronesia, Fed. States of 108 154 30 95 1 786

Nauru 10b 479b … 95 3 500d

Palau 21 46 68 91 6 350

Income group

Low income 80 31 61 536

Middle income 44 53 91 2 305

Upper middle income 20 72 94 5 189

a In 2000–04. b In 2001. c In 2003. d In 2002. … Not available.

Sources: Asian Development Bank (2005d); World Bank (2006e); Niue Statistics Offi ce.

4 Other Pacifi c island countries are not rated in this index created by Atkins and Mazzi (1999).


The growth record

Data for the Pacifi c island countries are not of good quality (H Hughes 2003)5, but support a

few generalisations about population and economic growth.

• High population growth In the period 1990–2004 the Melanesian countries of Solomon

Islands, Vanuatu and Papua New Guinea had annual population growth rates in excess of

2.5 per cent (Table 2.2), well above the average for developing countries. Population growth

has also been high in much of Micronesia, and very high (exceeding 5 per cent) in recent

years in East Timor. It has been low (1 per cent or less) in Cook Islands, Niue, Samoa, Tonga,

Fiji and Nauru.6

• Volatile but, on average, low economic growth Economic growth in the Pacifi c islands

region is volatile. Since 1990, most countries have had years in which they grew by more

than 10 per cent and others in which they contracted by more than 4.5 per cent. On average,

growth has been low. In the period 1990–2004, out of the 15 countries covered, only Tuvalu

and Cook Islands had annual average growth rates in excess of the average for their income

group (middle income and upper middle income respectively).

• Low or negative growth in income per person The combined result of low economic growth

and high population growth has been very low or negative growth in income per person.

In the period 1990–2004, only one country (Tuvalu) reached the 2.6–2.7 per cent average

growth rate for GDP per person of the low- and middle-income developing countries during

this period. Four out of the fi ve Micronesian countries had negative growth and, of the

Melanesian countries, only Fiji achieved more than 1 per cent annual average growth. In

general, the Polynesian countries, with low population growth, have done better in terms

of growth in GDP per person; they all achieved more than 1.5 per cent. However, even their

performance is modest, with Tuvalu’s 2.7 per cent being the maximum achieved.

• Worsening performance since the mid-1990s Since the mid-1990s, economic performance

has improved in a few countries, notably Cook Islands, Samoa and Tuvalu (Box 2.1), but

worsened in most. In the period 1995–2004, growth in GDP per person was negative for all

Micronesian and Melanesian countries except Kiribati and Fiji.

5 This is not only a problem for economic data. To take one example, according to the Asian Development Bank database, adult literacy in Vanuatu is 34 per cent (see Table 2.1). According to the United Nations Development Programme <http://hdr.undp.org/statistics/data/countries.cfm?c=VUT>, however, adult literacy in Vanuatu is74 per cent.

6 This is in part because of migration; however, the rate of natural increase is also lower in Polynesia than Melanesia (McMurray and Muagututia 2003).


• An improvement in the past few years The data since about 2003 are more positive for the

Pacifi c island countries, with improved economic growth and macroeconomic outcomes,

as Box 2.2 details. While this is encouraging, it is due in part to high commodity prices.

For most of these countries, growth prospects continue to be very uncertain, and it is far too

early to talk about a turnaround.7

table 2.2 • annual average growth rates in population, gdp and gdp per person,1990–2004

Population Real GDP Real GDP per person

% % %


Fiji 1.0 2.6 1.6

Papua New Guinea 2.5 3.6 1.0

Solomon Islands 2.8 0.8 -1.9

Vanuatu 2.7 2.7 0.0

East Timor 1.6 -4.4a -6.0a

Polynesia

Cook Islands 0.6b 2.5b 1.8b

Niue -2.2 ... …

Samoa 0.8 2.4 1.6

Tonga 0.4 2.6 2.2

Tuvalu 1.6c 4.3c 2.7c

Micronesia

Kiribati 2.2 4.2 2.0

Marshall Islands, Rep. of 1.9 -0.5 -2.3

Micronesia, Fed. States of 2.0 1.3 -0.7

Nauru 0.6c -4.4c -5.0c

Palau 2.0 1.2 -0.8

Income group

Low income 2.0 4.7 2.6

Middle income 1.1 3.8 2.7

Upper middle income 0.9 2.3 1.4

a In 1998–2004. b In 1990–2003. c In 1990–2002. … Not available.

Note: Annualised average growth rates are used here and throughout the report. Real GDP data for Niue are not available.

Sources: Asian Development Bank (2005d); World Bank (2006e).

7 As Rodrik (2004a) points out, the challenge of sustaining growth is, in many ways, more diffi cult than the task of achieving growth ‘… as it requires constructing over the longer term a sound institutional underpinning to endow the economy with resilience to shocks and maintain productive dynamism’.


box 2.1 • cook islands, samoa and tuvalu: bucking the trend

Growth in GDP per person in most Pacifi c island countries was either negative in the period

1995–2004 and/or lower than it was in the period 1990–2004. Cook Islands, Samoa and

Tuvalu are the exceptions to this generalisation; their growth accelerated after the mid-

1990s. Cook Islands’ GDP per person grew at an average annual rate of 1.8 per cent from

1990 to 2004, but at 3.7 per cent from 1995 to 2004. The corresponding fi gures for Samoa

are 1.6 and 2.1 per cent, and for Tuvalu 2.7 and 3.2 per cent. These 1995–2004 growth rates,

while moderate rather than rapid, are nevertheless the highest three for the Pacifi c island

countries over the past decade.

What is the secret of the relative success of these three countries? All have relatively low

population growth rates (less than 1 per cent for Cook Islands and Samoa, and 1.6 per cent

for Tuvalu). All also have high rates of migration, which keeps unemployment down and

results in high levels of remittances. Cook Islands and Samoa have long had good access

to the New Zealand labour market. Tuvalu specialises in providing seafarers who work for

international shipping companies.

Each country also has its own special features. Growth in Cook Islands has been driven by

tourism, which is almost half of its GDP. Tuvalu’s small economy is highly aid dependent (the

ratio of aid to GDP is 39 per cent). Recently, a number of large public construction projects,

the marketing of the ‘tv’ domain name, and increased returns from granting fi shing access

rights have led to increased incomes and economic growth. Samoa is the most diversifi ed

of the three. It has experienced growth in construction, manufacturing, agriculture, tourism

and increased access fees for fi shing.

Cook Islands and Samoa have undertaken economic reforms over the past decade, albeit

at an uneven pace (Sialaoa 2005). Prior to the mid-1990s, both countries faced serious

fi scal problems, but since then the two have emphasised fi scal discipline and public sector

restructuring. The International Monetary Fund (2005e, p. 19) reports that ‘over the last

decade, Samoa has transformed itself into one of the best managed economies in the

Pacifi c island region’. Samoa also enjoys political stability, with the same party in power

since 1982. Hughes and Gosarevski (2004) write that ‘Tuvalu is arguably the best governed

territory in the Pacifi c’, and point to the effective management of the Tuvalu aid-fi nanced

trust fund.

In summary, it would seem that good governance and the effective use of economic

opportunities – mainly aid, migration and tourism – lie at the heart of the relative success

of these three Polynesian states.


The long-term stagnation of the Pacifi c island countries is made clear by Figure 2.1, which

shows GDP per person in 1981 and 2004 for several of Pacifi c countries as well as for

Mauritius, another small and vulnerable island, but a fast-growing one. Mauritius, which lies

2400 kilometres off the coast of Africa, now has a population of 1.2 million. In 1981 the average

income in Mauritius was lower than in Fiji, and not much higher than in Vanuatu. Today, GDP

per person in Mauritius is more than double the average of any Melanesian or Polynesian

country. Box 2.3 explores the reasons for Mauritius’s success.

box 2.2 • improved economic performance of pacific island countries in recent years

Recent years have seen positive macroeconomic and growth performance in a number of

Pacifi c island countries.

• Cook Islands grew by 3 per cent in 2004, its sixth consecutive year of growth, led

primarily by tourism. Its fi scal position has improved since a crisis in the mid-1990s, and

debt is declining.

• Fiji has experienced average annual growth of 3.5 per cent since 2000. Some important

sectors are in sharp decline (sugar and textiles), and growth of only 1.5 per cent was

expected for 2005. Other sectors in Fiji are booming (see Box 4.2), giving some hope for

the future, provided political stability can be maintained.

• Papua New Guinea has also pulled back from a fi scal crisis and is now running a surplus

of over 1 per cent of GDP. The economy started to recover in 2003, and growth is now at

3 per cent. The current account is in surplus due to a booming mining sector.

• Samoa’s growth accelerated after the mid-1990s, slowed between 2002 and 2004, but then

accelerated again. The economy grew by 6.5 per cent in the 12 months to June 2005, led by

construction, agriculture and fi sheries. While there has been a fi scal stimulus associated

with the South Pacifi c Games, the overall macroeconomic position has been stable.

• Solomon Islands has had three consecutive years of growth after an economic collapse.

The government budget is in surplus, and debt is declining though still high.

• Vanuatu’s economy started growing again in 2003 after no growth from 1997, and is now

expanding at an annual rate of 2.5–3 per cent. The fi scal position, which was perilous,

has improved and the budget shows a small surplus.

Clearly, these are positive developments. At the same time, one should not paint too rosy

a picture. Some of these countries are still unstable. Growth of 3–4 per cent is not rapid

enough for all of these countries to make a dent in unemployment. External circumstances

are currently favourable – in particular, commodity prices are high – and will not always

remain so. Other Pacifi c island countries are not doing as well.

Sources: Asian Development Bank (2005a); International Monetary Fund (2005a, 2005b); Sialaoa (2005);World Bank (2005a).


fi gure 2.1 • gdp per person for selected pacifi c island countries and mauritius,1981 and 2004

0

1000

2000

3000

4000

5000

Fiji Vanuatu Samoa Tonga SolomonIslands

Papua NewGuinea

Kiribati Mauritius

US$

(con

stan

t 200

0 pr

ices

)

1981 2004

Data source: World Bank (2006e).

box 2.3 • mauritius: why has it been so successful?

Performance in Mauritius has been impressive by any standard.

• In the 1960s, James Meade, Nobel Prize winner, projected that Mauritius’s development

prospects were poor and that Mauritius was a strong candidate for failure. In 2000,

World Bank documents called the Mauritian economic and social performance a miracle.

• Between 1973 and 1999 the real GDP of Mauritius grew 5.9 per cent a year. Incomes

increased threefold over a 40-year period.

• Life expectancy at birth increased from 61 years in 1965 to 71 years in 1996; universal

primary school enrolment has been achieved; unemployment declined from 20 per

cent in 1983 to 3 per cent in the late 1980s (though it has subsequently risen to around

10 per cent).

Mauritius faced unfavourable conditions for growth in terms of geography and commodity

dependence. It had a relatively protective import regime, but that was offset by an

effi ciently run export-processing zone and preferential market access provided by

trading partners. The driving factor behind Mauritius’s success appears to have been the

quality of its domestic institutions. Successive Mauritian governments emphasised the

development of a national consensus in favour of the main elements of sound economic

management. The export processing zones were well run and were not plagued by

corruption, abuses and leakages. Respect for the rule of law and property rights made

Mauritius attractive to investors.

Source: Subramanian (2001).


Why does it matter that the Pacifi c island countries have been growing slowly, with most

countries experiencing little or no growth in income per person and some showing declines?

Rather than simply assuming that faster growth would be desirable, this chapter examines the

increasing challenges the Pacifi c is facing, and shows why higher growth is fundamental to the

region meeting these challenges. Employment is perhaps the most immediate and widespread

challenge and is dealt with here in some detail before some of the other challenges are

considered in a more summary manner.

Employment and joblessness

Perhaps the most compelling argument for economic growth in the Pacifi c island countries is

the link to employment. Many of these countries are experiencing low levels of employment,

which in turn is leading to poverty, social instability and crime. This lack of employment

manifests itself not only in the number of unemployed (those looking for work) but also in the

large number that withdraw from the workforce altogether. These are the ‘inactive’ – neither

working (whether in the subsistence or cash economy) nor studying. The sum of these two

groups (the unemployed and the inactive) is the number of jobless. In most Pacifi c island

countries it is very high. Figure 3.1 illustrates the case of male youth in a number of countries.

chapter three

Pacifi c challengesWe have a young and fast growing population. This means many

mouths to feed and bodies to clothe and take to the clinic. We have

only so much land for food gardens and our forests are declining

from over-logging. We can choose to prepare for the future, or we

can try to go back to the old ways that led to falling prosperity and

violence and destruction of the ethnic tensions … the only way up

is for the economy to grow.

Peter Boyers, Solomon Islands Finance Minister, Radio SIBC, 28 November 2005

26

fi gure 3.1 • male youth joblessness in the pacifi c region

0

5

10

15

20

25

30

35

40

45

Samoa Tonga Fiji SolomonIslands

Micronesia,Fed. States

Kiribati Palau MarshallIslands, Rep.

of

Perc

enta

ge o

f mal

e yo

uth

popu

latio

n

Male inactive

Male unemployed

Note: Joblessness is defi ned as being inactive (outside the workforce and not studying) or unemployed (not working, but seeking employment). The choice of countries refl ects data availability.

Data source: World Bank (2006c) based on national census data.

The 1990 census of Papua New Guinea found that 30 per cent of the urban workforce identifi ed

itself as unemployed. In 1997 a survey (Levantis 1997a) found that a staggering 70 per cent

of self-identifi ed urban unemployed males – equivalent to 15 per cent of the entire urban

workforce – were engaged in criminal activity. PNG crime rates increased twentyfold between

1970 and 1990, and its urban crime levels are among the worst in the world (Levantis 1998).

While better policing is needed to reduce the reward–risk ratio of criminal activity, more

opportunities also need to be presented for legal labour. Levantis reports that in the 27 years

to 1995, private sector employment in urban areas of Papua New Guinea grew by only

6.5 per cent in aggregate.

Other Pacifi c island countries have less of a crime problem, but also suffer from high

joblessness. The young unemployed were a factor in the civil unrest in Solomon Islands (Allen

2005). In East Timor in 2001, 20 per cent of the working-age population in the urban centres

of Dili and Baucau was unemployed; among urban youths aged 15–24 years, unemployment

in 2001 was 43 per cent and has probably since increased (World Bank 2005c). The Polynesian

countries benefi t from the ‘safety valve’ of migration (Duncan and Chand 2002; Ware 2004),

but still have high levels of underemployment.

The employment challenge the Pacifi c island countries are facing is particularly large because

of the rapid population growth some countries are continuing to experience. Population

growth rates are slowing (except in East Timor), but remain high outside of Polynesia. The

total population of the Pacifi c was estimated in 2003 to be 8.4 million, up from 2.5 million in

Pacifi c 2020 • chapter three pacifi c challenges


1950 (Bedford 2003).8 In the next 50 years, the population of the Pacifi c will double, due to

rapid growth in Melanesia and Micronesia. The Pacifi c island countries also have very young

populations. The proportion aged 0–14 years is in the 30–40 per cent range for most countries

– higher for Melanesia and Micronesia than for Polynesia (Table 3.1). Internationally, the

presence of a large ‘youth bulge’ is associated with an increased likelihood of civil confl ict

(Urdal 2004).9

table 3.1 • youth aged 0–14 years as a percentage of population, 2004

%


Fiji 31

Papua New Guinea 39

Solomon Islands 42

Vanuatu 34

East Timor 38

Polynesia

Cook Islands 30

Niue 30a

Samoa 33

Tonga 36

Tuvalu 30

Micronesia

Kiribati 39

Micronesia, Fed. States of 37

Marshall Islands, Rep. of 39

Nauru 37

Palau 27

Other

Australia 19

Less developed countries 31

Sub-Saharan Africa 43

Asia 28

a In 2001.

Sources: Niue Statistics Offi ce; US Census Bureau (2006).

8 These totals include fi gures for New Caledonia, French Polynesia, American Samoa, Guam, Mariana Islands, Tokelau and Wallis et Fortuna, but exclude East Timor.

9 As Helen Ware (2004) has written, ‘instability will continue to threaten Melanesia for as long as economic growth fails to signifi cantly outstrip population growth and thus to provide employment opportunities for a younger generation no longer satisfi ed with subsistence farming and fi shing’.

28

The rates of joblessness considered so far do not include the underemployed hidden in the

agricultural sector (people working in agriculture because there is no work elsewhere). While

agricultural growth is important to boost the incomes of rural inhabitants, it may be that,

given the underemployment already evident in agriculture, additional jobs will have to come

from outside of agriculture. If so, as Figure 3.2 shows, high rates of growth in non-agricultural

employment will be needed simply to keep the ratio of employed to working age population

constant – 7 per cent for Vanuatu and above 10 per cent in the case of Papua New Guinea. And

this is only to prevent joblessness from worsening, not to reduce it from its already high levels.

fi gure 3.2 • annual growth in non-agricultural employment required between2004 and 2020 to prevent joblessness from worsening

0 2 4 6 8 10 12

Papua New Guinea

Vanuatu

Solomon Islands

Tonga

Marshall Islands, Rep. of

Fiji

Cook Islands

Palau

Micronesia, Fed. States

Growth rate required (%)

Note: Assumed that there is no employment growth in agriculture. The choice of countries refl ects data availability.

Data sources: Asian Development Bank (2005d); Secretariat of the Pacifi c Community (2006).

Prospects are even worse if educated youth are interested only in paid employment.10 Take

Kiribati, for example. The Asian Development Bank (2002b) reports that around 1700 students

leave school every year, but only 400–500 jobs become available in the formal economy every

year.11 Without very rapid growth in output and therefore employment, the prospect is more

joblessness and social instability, at least for the Melanesian and Micronesian countries.


10 Excluding self-employment in the informal sector as well as subsistence agriculture.

11 Quoted in Ware (2004).


Other challenges: health, education, climate change,

urbanisation and poverty

Employment has been dealt with at some length because of the immediacy of the challenge, its

widespread nature and the frequency with which this issue was raised during the Pacifi c 2020

consultations. However, there are other challenges that the Pacifi c island countries will face in

the period to 2020.

• A growing health burden The traditional communicable diseases, such as malaria and

tuberculosis, are thriving in the Pacifi c. HIV/AIDS is ravaging Papua New Guinea and is a

threat elsewhere.12 But it is non-communicable diseases that now constitute the greatest

burden of disease in many Pacifi c island countries. In some countries diseases such as

cancer and diabetes are now at or exceed levels found in developed countries.

• Unmet educational needs Some countries still have a large number of out-of-school

children. Some still have a rapidly growing number of children to educate. In many Pacifi c

island nations, student performance indicates low levels of literacy and numeracy (World

Bank 2006c).

• Environmental challenges A recent report of the World Bank (2006b, p. viii) concluded that

‘there is no doubt that disasters in the region are becoming more intense and probably more

frequent’. It argues that climate trends for the Pacifi c point ‘to more extreme conditions

and increased climate variability … Average temperatures are expected to rise by between

1.0 and 3.1°C. Sea level is expected to rise by between 9 and 90 centimetres by the end

of the century. Cyclones are expected to increase in intensity by about 5–20 percent’.

For the low-lying atolls, the economic cost could be particularly large. Other pressing

environmental problems faced by the Pacifi c islands include waste disposal. In Kiribati,

faecal contamination of shellfi sh because of inadequate sanitation in Tarawa is the cause

of outbreaks of diarrhoeal diseases, hepatitis and sometimes cholera (Nukuro 2000).

• Rapid urbanisation At current rates of growth, Tarawa’s population will double to 73 000

by 2013, and Port Vila’s will double to 60 000 by 2016.13 Higher levels of urbanisation will

require increased spending on infrastructure (from roads to solid waste management), and

a lack of jobs will lead to a rise in urban crime.

• Poverty Despite poor data, there is now a consensus that poverty is a serious problem in

the Pacifi c. It does not result in malnutrition, as it does in sub-Saharan Africa and South Asia

(except perhaps in East Timor), but it is refl ected in diffi culties in meeting basic needs such

as adequate shelter and health care. The reality of urban poverty in the region is illustrated

by Box 3.1.

12 Latest estimates, quoted in Duncan, Howes and Williams (2005, p. 9), indicate that at current trends 11 per cent of Papua New Guinea’s adult population could be living with HIV/AIDS by 2025.

13 Tarawa is the capital of Kiribati, and Port Vila is the capital of Vanuatu.

30

Economic growth will not make all of these challenges disappear. Indeed, growth can

exacerbate some problems. For example, new infrastucture can facilitate the spread of

disease. But without growth the Pacifi c island countries will no more be able to deal with their

health, education, environmental and urban management challenges than they will be able to

solve the problem of joblessness.

Confronting these challenges will require signifi cant government responses – from

expenditure on health care to investments in urban infrastructure and waste management

to the implementation of environmental adaptation systems. However, in most Pacifi c island

countries, government revenue is already large relative to the size of the economy14, and

additional revenue will fl ow only from additional economic growth.

International evidence on the link between growth and poverty reduction is also very clear:

no country has signifi cantly reduced poverty without rapid economic growth. Figure 3.3

illustrates this for East Asia (which has seen rapid economic growth and poverty reduction),

South Asia (moderate economic growth and poverty reduction) and Africa (negative growth

and increased poverty).

box 3.1 • life in a png urban squatter settlement

Some Pacifi c countries have seen a large rise in rural–urban migration in recent years for a

number of reasons, including lack of employment, limited education opportunities and the

need to support the extended family. On the outskirts of many cities in Papua New Guinea,

shanty settlements have sprung up to accommodate this increasing rural–urban drift.

While often referred to as squatter settlements, many have become permanent. Settlement

populations are increasing and conditions are becoming more crowded.

In one such Port Moresby settlement, the population has doubled to almost 2000 in the

past two years. In this particular slum, the great majority of working-age residents are

unemployed and only a few primary-age children attend school. None of the houses has

running water, and only a few have electricity. The nearest health clinic closed after being

broken into and trashed twice. Community representatives report that the settlement is rife

with crime. Women’s representatives report that women live in fear.

Sources: UNESCAP (1999); visit to the settlement by Australian offi cials in 2005.


14 In 2004, government revenue averaged 40.5 per cent of GDP for the Pacifi c island countries, with a high of 151.6 per cent in Tuvalu and a low of 18.1 per cent in East Timor (Asian Development Bank 2005d).


fi gure 3.3 • average annual growth in gdp per person and reduction in the poverty rate in east asia, south asia and sub-saharan africa from 1981 to 2001

-4%

-2%

0%

2%

4%

6%

8%

East Asia South Asia Sub-Saharan Africa

Annual growth in GDP per person Annual rate of poverty reduction

Rapid growth and poverty reduction

Moderate growth and poverty reduction

Negative growth and poverty reduction

Note: Annual rate of poverty reduction is the annualised percentage reduction in the number of people living below the US$1 a day poverty line.

Data source: Chen and Revallion (2004).

Thus, the growth rates the Pacifi c island countries achieve are of fundamental importance. If

economic growth continues to follow historical trends, many governments will fi nd themselves

increasingly unable to provide employment opportunities for their growing populations, meet

mounting health threats, cope with rapid urbanisation, and deal with the potential threats

induced by climate change. As put by the Finance Minister of Solomon Islands, in the quote

that begins this chapter, the only way up for the Pacifi c is ‘for the economy to grow’.


How will the countries respond to the challenges facing them? Will governments make a

break from the past and enable the economic growth needed to thrive in uncertain times,

or will things only get worse? Three scenarios can be envisaged: ‘doomsday’, ‘muddling on’

and ‘growth’.15

Doomsday scenario

Under the doomsday scenario the Pacifi c island countries fail to meet the challenges

confronting them. In 1993, the authors of Pacifi c 2010 imagined a Pacifi c by 2010 in which:

… population growth is careering beyond control: it has doubled to 9 million: malnutrition is

spreading and is already endemic in squatter settlements … there are beggars on the streets

of South Pacifi c towns … levels of unemployment are high … deaths from AIDS, heart disease

and cancers have greatly increased … aid donors have turned their attention elsewhere …

crime has increased … pollution and land degradation has spiralled … much of the surviving

rain forest has been logged … coastal fi sheries have been placed under threat from over

fi shing … skills shortages in the labour market yawn wide (Cole 1993, back cover).

Much of what the Pacifi c 2010 authors predicted appears to have come true (H Hughes 2005),

though not all of it in all countries. More recent ‘doomsday’ commentaries have referred

to Solomon Islands in particular as ‘failing’ or ‘failed’ (Economist, 13 February 2003), have

suggested that other Pacifi c economies are heading in the same direction, and refer to a Pacifi c

‘arc of instability’ that could turn into an ‘arc of crisis’ (Dibb 2003; H Hughes 2003).

Muddling-on scenario

Duncan and Gilling (2005, pp. 8, 22) have presented a muddling-on scenario for the region.

Given the continuation of aid and existing migration opportunities, most … should be able

to muddle on, with likely continuation of the deterioration of services and increasing levels

chapter four

Pacifi c scenarios

15 See van Fossen (2005) for an alternative presentation of Pacifi c futures.

34

of poverty. With the aging of developed countries, opportunities for off-shore employment

for semi-skilled and skilled labour should increase. However, there will be a continued

growth of urban areas in PICs and, with the loss of younger people from rural areas, aging of

populations in rural areas. Thus the safety net of the village will not be so robust and groups

most likely to suffer will be elderly women and children experiencing deteriorating education

and health services.

Countries most at risk under this scenario are those with projected population growth

rates in the two to 2.5 per cent range: FSM, Kiribati, RMI, Solomon Islands, and Vanuatu.[16]

With their poor capacity to absorb waste, the atoll island countries, Kiribati and RMI, face

alarming infectious disease burdens and poverty if populations in their major urban centres

continue to grow at recent rates. The land-rich Melanesian countries, Solomon Island and

Vanuatu, will be at most risk from political instability and law and order problems due to

large numbers of unemployed youth and rents offered by the natural resource sectors.

Poor economic growth will exacerbate these problems because the institutions expected to

maintain law and order will be starved of funds.

This is a scenario in which the Pacifi c island countries do not thrive, but nor do they collapse.

Neither the doomsday nor the muddling-on scenario presents an inspiring view of the future.

But the muddling-on scenario recognises that some countries will probably do better than

others and that there are two important supports for the Pacifi c – foreign aid and workers’

remittances (Table 4.1).

On a per person basis the Pacifi c islands receive the most aid of any group in the world.17 It is

unlikely that aid volumes will fall in the near future. Migration opportunities, though unevenly

spread across the Pacifi c, are increasing rather than diminishing. Tonga and Samoa are among

the top-ten most remittance-dependent economies in the world. For countries such as them,

remittances are more important than aid, and remittances and aid together can be as much as

70 per cent of GDP.18

Growth scenario

Aid and remittances are important sources of revenue for Pacifi c island governments and

households respectively. Managing aid fl ows effectively and promoting remittances are

sensible strategies for any government. But, as the history of the region shows, aid and

remittances will not on their own sustain rapid growth. Under the growth scenario, a range of

Pacifi c 2020 • chapter four pacifi c scenarios

16 The Duncan and Gilling (2005) study did not encompass Papua New Guinea and East Timor. If it had, it would surely have included them on this list of countries most at risk.

17 There is a debate worldwide about whether aid promotes or hinders growth (see Duncan and Gilling 2005 for a review in the Pacifi c context). Whatever one’s stance on this debate, the argument here is that aid provides a ‘safety net’ to the island states, preventing their collapse.

18 This is based on remittances as reported in the balance of payments. Actual remittances are believed to be much larger.


table 4.1 • aid and remittances to pacifi c island countries, 2003

Aid per person

Aid as a percentage of GDP

Remittances per person

Remittances as a percentage of GDP

US$ % US$ %


Fiji 61 2.3 185a 7a

Papua New Guinea 40 6.4 1 0.2

Solomon Islands 132 25.5 4 0.0

Vanuatu 154 11.7 43 3.3

East Timor 172 44.9 … …

Polynesia

Cook Islands 263 3.5 … …

Samoa 186 10.4 253 14.2

Tonga 270 16.3 650 39.2

Tuvalu 520 38.6b 460c 35.9c

Micronesia

Kiribati 191 31.5 73 12.0

Marshall Islands, Rep. of 991 53.9 11b 0.6b

Micronesia, Fed. States of 923 49.5 19b 1.0b

Nauru 1 242 35.5b … …

Palau 1 295 20.6 … …

Income group

Low income 14 2.9 16 3.4

Middle income 9 0.5 27 1.4

Upper middle income 10 0.2 47 1.1

a Narube (2005). b In 2002. c In 2001. … Not available.

Note: Data for Niue are not available.

Sources: OECD (2006); World Bank (2006e); Asian Development Bank (2005c).

reforms (along the lines outlined in this report, for example) are undertaken and, as a result,

economic growth accelerates.

It is of course diffi cult to say what economic growth rates could be achieved with reform. In

the Pacifi c, as mentioned, Cook Islands, Samoa and Tuvalu have shown the highest sustained

GDP growth rates (Box 2.1). But the real success stories among small and/or remote countries

come from outside the Pacifi c. Mauritius has already been mentioned; its GDP grew at a rate

of 5.9 per cent a year between 1973 and 1999 (Box 2.3). Other examples of successful, small,

island economies include Iceland, Seychelles, Singapore, St Lucia, and Trinidad and Tobago.

36

If the Pacifi c island countries grew for a sustained period at Mauritius’s rate19, what sort of

difference would it make? Table 4.2 presents projections of GDP per person for these countries

under two sets of assumptions:

• their economies continue to grow for the next 15 years at the average rate they achieved

in the past 15 years, and

• their economies advance at Mauritius’s long-term annual average rate of growth

(5.9 per cent).

These assumptions about growth in GDP were combined with projections of population

growth from the US Census Bureau (2006) to produce the projections for GDP per person for

the year 2020.20

The differences in outcomes are striking (Table 4.2). For many of the Micronesian and

Melanesian countries, growing at historical and high growth rates is a choice between declining

and doubling income per person. For the 10 countries in these two groups, the continuation

of historical growth means a decline in income per person for all except Fiji, Kiribati and

Papua New Guinea. These three exceptions will see GDP per person increase by only 30, 40

and 20 per cent, respectively, over the next 15 years. For the Polynesian countries, the choice

is between slow growth (increasing incomes by a half or less by 2020 if growth continues at

historical rates) and rapid (doubling incomes or more by 2020 if high growth is achieved).

Which scenario will eventuate?

Clearly, only the high growth scenario will enable the Pacifi c island countries to meet the

challenges outlined in the previous chapter. But what are the chances of it being realised?

Worldwide, there is a debate over the potential of small, isolated nations (Box 4.1).

Consistent with the variety of positions in the international debate, support can be found in the

Pacifi c for all three of the scenarios presented. Those who believe that the doomsday scenario

is the most likely to be realised can point to any number of negative developments. The most

dramatic of these include the rapid spread of HIV/AIDS in Papua New Guinea, the breakdown

of civil order in Solomon Islands, leading to a collapse of output (GDP per person in 2005 was

two-thirds of the 1995 level), and the plight of Nauru, which in 1975 had the second highest

income per person in the world, but which today is bankrupt.


19 Some countries are aiming for even higher growth. The Governor of the Reserve Bank of Fiji has referred to a national 8 per cent growth target (Narube 2005).

20 Dr Satish Chand of the Australian National University provided the statistical framework for these projections.


table 4.2 • projected gdp per person in pacifi c island countries in 2020

GDP per person, 2004

GDP per person, assuming

historical growth continuesa

GDP per person, assuming

high growth is achieveda

Projected population growth

US$ US$ US$ %


Fiji 3 098 3 994 6 339 1.3

Papua New Guinea 695 820 1 292 2.0

Solomon Islands 513 376 913 2.2

Vanuatu 1 472 1 464 3 014 1.3

East Timor 366 136 685 1.9

Polynesia

Cook Islands 7 549b 10 094 17 086 0.7

Samoa 2 030 2 630 5 068 0.0

Tonga 2 087 2 952 4 135 1.5

Tuvalu 1 346c 2 045 2 645 1.6

Micronesia

Kiribati 633 871 1 135 2.2

Marshall Islands, Rep. of 1 803 1 242 3 393 1.9

Micronesia, Fed. States of 1 786 1 587 4 706 -0.3

Nauru 3 500b 1 553 6 797 1.7

Palau 6 350 5 616 13 650 1.0

a In constant 2004 prices. b In 2003. c In 2002.

Note: Historical growth refers to the annual average GDP growth rate over the period 1990–2004. High growth is assumed to be 5.9 per cent, the annual average growth rate of Mauritius from 1973 to 1999. Data for Niue are not available.

Sources: US Census Bureau (2006); World Bank (2006e); own calculations.

Those who think that the muddling-on scenario is more realistic can point to the robustness

of aid fl ows and the recent growth in remittances (Bedford 2003; Fry 1996; Naidu 2005). They

can also note the strength of democracy in the Pacifi c, and its survival in the face of serious

challenges in Papua New Guinea, Fiji and Solomon Islands.

Finally, those who are more optimistic about growth prospects can point to individual success

stories. The performances of Cook Islands, Samoa and Tuvalu have already been noted, as has

the recent return to growth in a number of other countries (Boxes 2.1 and 2.2). Fiji has shown

recent growth in a number of sectors (Box 4.2). Realising the growth scenario will be a matter of

sustaining and building on these recent developments. More broadly, it is a source of optimism

that the Pacifi c island countries are still very young nations and can be expected to learn and

adapt over time. Asia’s economic boom should also have positive spillover effects for them.

38

box 4.1 • do smallness and remoteness matter?

There is a continuing debate over the severity of the natural disadvantages small economies

face. In most of the literature the defi nition of smallness is based on population of fewer

than 1.5 million.

Based on cross-country regression analysis, some argue that, on the whole, small countries

have done no worse than large ones in terms of economic outcomes (Brugligio et al. 2005;

Easterly and Kraay 2001; but see Sampson 2005 for a dissenting view). Venables (2004)

argues that good management enables small states to fi nd and prosper in the ever-changing

niches that present themselves to such economies. Others have countered that smallness

does entail extra diffi culties and costs for effective management. Winters and Martins (2004)

estimated that costs for businesses in areas such as electronics, textiles or tourism are

slightly higher in small countries (3–6 per cent). Others have posited that small size makes

good governance harder to achieve, since the per person cost of governance is higher, and

impartiality harder to achieve in an environment of familiarity (Alesina and Spolaore 2003).

The economic literature also includes a debate on very small countries and microstates.

Winters and Martins defi ne a micro-country as one with a population of fewer than 12 000,

and a very small country as one with a population of fewer than 200 000. Most of these are

island states, often in remote locations. Winters and Martins have argued that this special

category of countries faces much greater disadvantages. They estimate that the costs of

manufacturing for businesses in electronics, textiles or tourism are much higher for very

small states (14–28 per cent) and even higher (36–57 per cent) for microstates. Others

point to the variety of experience among even the very small states and argue that poor

governance rather than very small size is the main factor behind poor performance (Hughes

and Gosarevski 2004).

While the debate continues, there is broad agreement that small economies should avoid

exacerbating their natural handicaps and aim to reduce the high economic costs that

beset them through domestic policy reform, regional or pooled governance, or outright

integration with larger countries.


Perhaps the biggest source of optimism is the growing consensus in the Pacifi c island

countries that economic growth must increase if their future is to be secured. Since the

mid-1990s, the Pacifi c island countries have been grappling with economic reforms. For

example, the Asian Development Bank has assisted eight countries with reform programs

focusing on economic and fi nancial management: Cook Islands, Federated States of Micronesia,

Republic of the Marshall Islands, Papua New Guinea, Samoa, Solomon Islands, Tonga

and Vanuatu.


box 4.2 • fiji success stories

Fiji is facing a diffi cult economic future because its two traditional export earners, sugar

and textiles, are in decline. However, new sources of employment and export earnings are

emerging to take their place.

• Mineral water Since capping its fi rst bottle in 1996, Fiji Water has become one the largest

exporters of water to the United States. It now earns F$70 million (about A$55 million)21

a year in exports for Fiji, the result in part of smart branding that takes advantage of the

Pacifi c’s pristine image. A second bottled-water company in Fiji, Island Chill, recently

opened a plant and is making inroads into the Australian and New Zealand markets.

• Tourism Fiji, the Pacifi c’s most popular tourist destination, has experienced high growth

in tourism over the past fi ve years. Visitor numbers exceeded 500 000 for the fi rst time in

2004, 18 per cent more than in the previous year, and income from tourism is now 13 per

cent of GDP.

• Remittances The Governor of the Fiji Reserve Bank recently noted: ‘Personal remittances

have surged to F$300 million in 2004, compared to a mere F$50 million fi ve years ago.

Remittances are now equivalent to 7 percent of GDP … They have displaced garments

and sugar … to become the second largest source of foreign exchange earnings for Fiji

[after tourism].’ The Governor concluded: ‘Everyone should say thank you to all our

peacekeepers, security personnel, nurses, sportspersons and family members abroad for

helping us pay for our imports’ (Narube 2005).

• Back-offi ce processing ANZ Bank has set up a Business Process Offshoring operation

in Suva, and new outsourcing centres are being established. NIIT, a leading Indian

corporation, is involved in a joint venture providing information technology training. More

growth in back-offi ce processing is possible if telecommunication reforms lead to better

services and reduced costs.

• Horticultural exports Exports of horticultural products from Fiji have increased from

less than 5 tonnes in 1996 to 650 tonnes in 2004. It is estimated that such exports could

further increase by up to fi ve times before reaching market saturation.

Each of these sectors faces a number of challenges, including infrastructure limitations,

land tenure policy, restricted market access and, most importantly, political instability.

However, they also show what is possible, not only in Fiji, but in the Pacifi c island countries

more generally.

Sources: Kato (2005); McGregor (2006) Pacifi c 2020 background paper; Narube (2005).

21 Based on the average exchange rate for the year ended 31 December 2005.

40

Real progress has been made by some. The 2005 assessment of Vanuatu by the International

Monetary Fund (2005a, p. 11) – that it ‘fulfi ls many of the theoretical requisites for strong

economic growth: a relatively sound macroeconomic environment with low public debt, limited

infl ation, and an open trade regime’ – could not have been made as recently as a few years

ago. Samoa and Cook Islands also stand out as having benefi ted from their reforms (Box 2.1).

But, clearly, not all of the reform programs have been a success; in most countries they have

not had the growth payoff expected. There are various reasons for this. First, reforms so far

have focused more on stabilisation than on growth-promoting structural reforms. Many Pacifi c

island countries remain expensive and uncertain places in which to do business. Second,

reform progress has been uneven, and it is only recently that macroeconomic stabilisation

has been achieved. Third, some of the deeper weaknesses that affl ict the countries – such

as weak political governance and insecure land tenure – have been left untouched and have

undermined whatever benefi ts have accrued from reforms in other areas.

What should Pacifi c island countries learn from their experiences to date? Certainly, it should

be not to give up on reform, just when growth has returned to the Pacifi c (Box 2.2). A two-

pronged approach is needed: structural policy reforms and sensible public investment where

a relatively quick growth impact can be expected (for example, in infrastructure), combined

with more attention to the tough, long-term growth constraints (such as political governance

and land tenure). This is the approach taken in Pacifi c 2020, as it spells out both immediate

opportunities, which can be grasped quickly, and the longer term, bigger challenges.

Given the diversity of the Pacifi c island countries, it is unlikely that one scenario will be realised

by them all. It is more likely that they face differentiated futures. Some countries might thrive,

others might muddle on, and others might face a doomsday of collapse. Melanesia faces special

challenges because of its fragmentation and lack of access to international labour markets

(except for Fiji, which has more skilled labour to export). History has also shown that Melanesia’s

rich natural resources, while clearly an opportunity, can lead to instability if property rights

continue to be poorly defi ned and enforced (Duncan and Chand 2002). The microstates also face

special challenges to their viability (see Box 4.3). Although sustained rapid growth in domestic

output is unlikely for at least some of them, the quality of their economic management will still

be critical to their success at exploiting their economic opportunities.22

While different Pacifi c island countries face different challenges, ultimately for all of them

their success in generating growth and in meeting their many challenges will depend on

the decisions their governments make. There are enough success stories among them and

elsewhere to indicate that small, remote island countries can prosper if they have effective

economic management and sound policies.


22 Several less-developed, very small countries of the world outside the Pacifi c have achieved viability through one or combination of the following factors: exploiting market niches such as tourism (Maldives, Seychelles, Bermuda, Dominica), migration (Comoros) or close integration with larger countries (Cayman Islands, Bermuda). Most Pacifi c small island states have similar opportunities.


box 4.3 • the pacific’s ‘small island states’

To the casual observer, all of the Pacifi c island states, except perhaps Papua New Guinea,

would appear to be small. But size is relative and, in the Pacifi c context, small means

very small or ‘micro’ (see Box 4.1). The Pacifi c Plan categorises seven states out of the

14 developing countries that are members of the Pacifi c Islands Forum as small island

states: Cook Islands, Kiribati, Nauru, Niue, Republic of the Marshall Islands, Tuvalu and

Palau. Some of them are among the smallest countries in the world; Niue has a population

of 1800. The largest, Kiribati, has a population of around 90 000. The combined population

of the seven small island states (214 800) makes up only 2.4 per cent of the population of

the developing countries in the Pacifi c Islands Forum.

Despite their sizes and lack of resources, most small island states are less impoverished

than some of the larger and better resourced Melanesian countries. They rely to differing

degrees on migration (in large part through the close association some of them have

with New Zealand and the United States), aid, revenue from granting fi shing access rights,

and tourism.

The handicaps of the small island states severely limit their growth prospects. They face

extreme geographic isolation, making transportation costs high and economies of scale

impossible to realise. Size and topography make them acutely vulnerable to population

pressures, natural disasters and environmental degradation. The land in most of these

countries is unsuitable for anything more than subsistence agriculture or copra production.

Is Pacifi c 2020 irrelevant for the small island states? Certainly some of the sectoral topics will

have little relevance. More broadly, the goal of sustained rapid growth of domestic output

may not be feasible for all of them. Knowledgeable observers note that some small island

states ‘may well face insurmountable obstacles to achieving sustainable growth and remain

dependent on aid’ (Duncan and Gilling 2005, p. 115). On the other hand, Cook Islands and

Tuvalu have been the fastest growing Pacifi c island countries over the past decade (Box 2.1).

While the growth prospects of these countries vary, none of them is devoid of economic

opportunities. Effective management of their economies may not lead to sustained growth

in domestic production in all cases. It will, however, make the difference between success

and failure in exploiting the opportunities open to them, and thus generating the income

needed to meet their underlying challenges of generating jobs, fi nancing health care, etc.

This is turn will require that many of the growth challenges that Pacifi c 2020 analyses

(especially the common themes in Chapter 6) be addressed.


What will it take to realise a growth scenario for the Pacifi c island countries? The nine Pacifi c

2020 growth topics were selected to help fi nd an answer to this question. This chapter

presents a summary of the main fi ndings in relation to each of them: the four crosscutting

growth factors (investment, labour, land and political governance) and the fi ve productive

sectors (agriculture, fi sheries, forestry, mining and petroleum, and tourism). More details on

each of them can be found in Part Two.

Growth factors

investment and private sector development

Data on investment in the Pacifi c region is poor, but investment levels are generally thought

to be low. Much of the investment comes from the public sector. This investment is important

if well directed (to fi ll infrastructure gaps, for example), but ultimately it is private sector

investment that will drive economic growth – not only by adding to the capital stock, but by

increasing entrepreneurial capacity. Thus, when discussing investment, the focus has to be

on private sector development. The private sector requires a competent government, but is

discouraged by an overbearing one. Governments need to facilitate private investment, not

crowd it out by being directly involved in commercial activities or by imposing burdensome

regulations or excessive taxation.

Several Pacifi c island countries have improved their macroeconomic and fi scal performance

but this in itself may not be adequate if other barriers to private investment are not tackled.

Six priorities for action were identifi ed by the Pacifi c 2020 process.

Tackling the problems of political instability, law and order, and corruption. Surveys

of businesses on the main impediments to investment often put some combination of

these underlying problems at the top of the list. More broadly, improving governance and

strengthening institutions in the Pacifi c island countries emerged from the Pacifi c 2020

process as such an important priority that it is expanded on in Chapter 6 as one of the

report’s four common themes.

chapter fi ve

Key fi ndings

44

Filling the infrastructure defi cit. Transport and telecommunication costs are high in the Pacifi c

island countries. Power and water are unreliable or absent in most rural and some urban areas.

Infrastructure reform came through repeatedly as a critical challenge for Pacifi c investors, from

small farmers to foreign developers, and is expanded on in Chapter 6 as one of the report’s

main themes.

Developing fi nancial markets. Credit is diffi cult or impossible to obtain for all but the largest

businesses. Land tenure reform will be important (see below), but so will the establishment

of credit information systems, now under development in Samoa and Fiji. Microfi nance has

enormous potential in the Pacifi c island countries, if it is kept out of the public sector.

Reforming legal and regulatory systems. Legal systems are outmoded, and regulatory

requirements are often overwhelming. On the World Bank Group’s composite ‘ease of doing

business’ indicator the Pacifi c island countries range from 36th out of 155 countries (Tonga)

to 142nd (East Timor), whereas the average ranking for countries in the Organisation for

Economic Co-operation and Development is 22 (see Figure 8.2). The Pacifi c islands can ill

afford cumbersome business regulations to add to their intrinsically high-cost structures.

Reforming state-owned enterprises. Governments in the Pacifi c island countries have

not been successful in their ventures into business. Selling off enterprises would provide

more opportunities for the private sector, and running those that remain in government

hands along more commercial lines would make more effi cient use of scarce capital.

Working with the private sector to build dialogue and capacity. More open dialogue is

needed between policymakers and private sector operators. The recently created Pacifi c

Islands Private Sector Organization is an encouraging development. Training in partnership

with industry organisations to build entrepreneurial skills would also help.

land

No subject in the Pacifi c is more contentious than land tenure. In spite of the diffi culties

involved in land tenure reform, change is essential, not only to encourage economic growth,

but also to promote stability in the face of increasing demographic pressures and the changing

aspirations of citizens. The largest two confl icts seen in the Pacifi c since countries gained

independence – the Solomon Islands and Bougainville confl icts – had their roots in land

tenure. Without change, current land tenure systems will become increasingly unworkable

and irrelevant.

Given the importance of customary ownership to the Pacifi c island countries and the sensitivity

of land tenure reforms, a guiding principle for land reform should be to change land tenure

only to the extent necessary. The blending of ownership at the group level with long-term

leases covering the rights to use and develop land at the individual level points the way

forward. Under this approach, customary groups are protected and individuals are given the

security they need for investing in land development.

Pacifi c 2020 • chapter fi ve key fi ndings


Change will be successful only if there is strong local support and if the necessary

administrative and fi nancial resources are available. The most sensible approach is to try not

to do too much at once. The focus should be changes with the highest priority, particularly in

highly populated urban areas, resource enclaves and major tourism developments. Reforms

should be trialled in pilot projects before they are introduced more generally. Priorities for

action include the following.

Improving the recording of land rights. An important part of land tenure reform is to record

rights over lands. It is unrealistic to aim to record all customary rights. A more pragmatic

approach is to aim to better record the rights of the land developers, including who has

granted those rights, how benefi ts will be shared, and what controls will apply to the

development.

Establishing an effective legal framework for land dealings. A legal framework should allow

customary landowners and developers to deal directly with each other. Safeguards need to

be put in place, not least to prevent exploitation. This is a proper role for government – to

establish and oversee the framework for land dealings – with the state playing a regulatory

role rather than a more direct, intermediary one.

Establishing dispute settlement machinery. Although one benefi t of land tenure reforms

should be fewer disputes over land, disputes are bound to arise under any system. Dispute

settlement machinery is needed. It might involve special land courts and procedures, and

should rely heavily on mediators and arbitrators.

Improving land administration services. Weak land administration is probably the main

constraint on land tenure reform. Delays in granting leases and other processes inhibit

development and lead to corruption. Extending the involvement of government into sensitive

areas, such as the recording of interests and dealings in customary land, will be diffi cult

when the present level of regulatory service provided by governments is so low. Government

departments responsible for land and related agencies need to be reformed, and services

contracted out where appropriate.

labour

The employment crisis that the Pacifi c island countries are facing has already been outlined

(in Chapter 3) and its implications for social stability noted. Creating more employment will

require faster growth – the central focus of this report. Pacifi c labour markets are already

relatively fl exible. But there are a number of other employment-related issues on which

governments should focus.

Protecting and building human capital. More emphasis needs to be given to technical and

vocational training. Not just more but better quality training is needed, clearly linked to

demand from industry. Beyond this, access to and the quality of school education systems

46

need to be improved. As mentioned in Chapter 3, there is also a serious health threat to

labour productivity in the Pacifi c from a range of serious and worsening health problems

– from HIV/AIDS and malaria to cancer, heart disease and diabetes.

Combating discrimination. Governments have an interest in ensuring that all citizens can

contribute to the economy, regardless of gender, ethnicity or other differences. To this end,

they can promote employment policies that support equal opportunity and help to change

attitudes that limit the role and opportunities for women and perhaps other groups that are

discriminated against in the workplace.

Integrating with international labour markets. The experience of several countries is that

exporting labour can be an important strategy for development in the Pacifi c islands. Migration

reduces unemployment and increases incentives for education, while remittances boost

incomes and foreign exchange earnings, and provides working capital for domestic trading and

other businesses. Governments of the Pacifi c island countries can promote integration with

international labour markets by boosting skill levels that are in short supply both in the Pacifi c

and in developed countries. A greater supply of skilled labour will also directly benefi t the

local economy. As the Philippines and Vietnam have shown, and as East Timor is attempting

to do, governments can also facilitate the movement of labour overseas through bilateral

negotiations and licensed migration schemes with richer countries. Governments should also

liberalise restrictions on skilled immigrant labour, since the damage to domestic employment

opportunities from such restrictions is large.

Boosting opportunities for self-employment. Most people in the Pacifi c island countries are

self-employed in agriculture or other activities in the informal sector. Removing regulatory

barriers that hamper the informal sector (for example, by making it diffi cult for street hawkers

to operate) is important. Providing basic business training and information will also help and is

best done through the private sector.

political governance

The Pacifi c 2020 consultations revealed a consensus that current political arrangements in the

Pacifi c are not delivering the desired economic outcomes. There is too much corruption and

political instability, and too little pursuit of the public good. Without more effective political

leadership, sustained growth will remain elusive. How such leadership can best be achieved is

up to the countries to decide, but some of the ways forward are clear. The reforms presented

below may not have an immediate payback. Improving political governance to strengthen

accountability to the broader electorate is a long-term challenge, but perhaps the most

important one facing the Pacifi c island countries between now and 2020.

Strengthening electoral systems, parliaments and oversight institutions. While there is no

single ‘model’ electoral system, voting rules that encourage politicians to represent broad

majorities rather than narrow minorities will likely assist. So too will the sort of reforms



undertaken recently by Papua New Guinea to counter party fragmentation and frequent

party-hopping. Parliaments can be strengthened by educating parliamentarians and assisting

parliamentary committees. To combat corruption, oversight institutions need to be adequately

resourced and independent of political infl uence. Regional approaches can be particularly

helpful in this regard. There is merit in considering the integration of formal local governance

structures with local traditional leadership systems.

Using partnerships with civil society to improve governance. Governments that are serious

about improving performance should encourage and empower non-state actors to perform the

roles of watchdogs and pressure groups to improve government performance. One of the best

ways to do this is to promote transparency and increase the amount of information put into the

public domain.

Productive sectors

The importance of the fi ve sectors studied, both individually (although agriculture, forestry

and fi sheries are grouped) and together, is apparent from Table 5.1. As a proportion of

‘non-government’ output – GDP minus public administration – they account for as much as

74 per cent (in the case of Palau). Annex B to this report contains more information on the

importance of these sectors to the Pacifi c island countries.

The summaries that follow focus mainly on sector-specifi c issues, but also highlight the

crosscutting growth factors that are especially important for the particular sector being

considered.

agriculture

Agriculture provides more employment than any other sector in the Pacifi c island countries.

It employs as much as 80 per cent of the workforce in Papua New Guinea and Solomon Islands.

Productivity improvements in the agricultural sector would generate surpluses that would

help to shift farmers from subsistence to the cash economy, and would lead to increases in

income and savings, which could fuel growth in other sectors. Yet agriculture is operating at

well below potential. Available data indicate that, for the Pacifi c island countries as a group,

total agricultural output stagnated over the period 1990–2003. The problem is not a scarcity of

opportunities for agriculture. There are both domestic opportunities for supplying urban and

tourist markets and export opportunities for traditional tree crops and new horticultural and

spice products.

Why are these opportunities not being grasped? Of the crosscutting growth issues summarised

in this chapter, infrastructure emerged as a particularly important constraint for agriculture.

For example, the establishment of the Highlands Highway in Papua New Guinea in the

mid-1960s led to the coffee industry becoming the country’s largest source of rural income

48

(Allen 2001, p. 543). However, in 2004, 30 per cent of the country’s coffee yield could not be

marketed due to the poor condition of the road network. Three sector-specifi c priorities for

accelerating agricultural growth were also highlighted.

Getting new technologies and more market information to farmers. Limited access to

the latest technology and market information is constraining agricultural growth. In many

countries, there is little point trying to rehabilitate the traditional, but now often defunct,

extension functions of departments responsible for agriculture. The future lies in contracted-

out (or, where possible, industry-led) research and extension for export crops, as well as for

domestically marketed and subsistence food products.

Removing distortions against agriculture. It is now well recognised that macroeconomic policy

settings should not discriminate against agriculture. But microeconomic policies are just as

important. Governments should allow markets to fl ourish, rather than impose monopolistic

purchase arrangements on farmers.


table 5.1 • relative importance of selected sectors to gdp in pacifi c island countries, 2002

Agriculture, forestry and

fi sheries Mining Tourism

Sectors as a percentage of non-govt GDP

% % % %

Melanesia

Fiji 15.9 0.9 12.8 37.0

Papua New Guinea 33.1 16.1 6.3 61.7

Solomon Islands 12.1 … 2.9 …

Vanuatu 15.4 neg. 16.6 37.5

Polynesia

Cook Islands 11.9 neg. 47.0 66.6

Samoa 14.6 neg. 9.5 26.2

Tonga 27.7 0.4 14.7 51.2

Micronesia

Kiribati 5.8 neg. 14.5 35.6

Marshall Islands, Rep. of 10.4a 0.3a … …

Nauru 18.8 2.4 … …

Palau 4.0 0.2 49.0 74.0

a In 2001. neg. Negligble. … Not available.

Note: Data for Niue, Federated States of Micronesia and Tuvalu are not available.

Sources: Asian Development Bank (2005d); South Pacifi c Tourism Organisation (2006a).


Facilitating market access. Quarantine is currently a weak link in the export marketing chain

for Pacifi c island countries. To prosper, the agricultural sector requires an acceptable level

of quarantine security for both exports (to gain access to export markets) and imports (to allow

safe imports of improved agricultural technologies). This can perhaps best be achieved through

a regional approach, as envisaged by the Pacifi c Plan’s Regional Trade Facilitation Programme.

fisheries

The Pacifi c island countries control massive fi shery resources. But oceanic fi sheries are

approaching the limits of sustainability after decades of steady growth in catches, and coastal

fi sheries are facing environmental risks. Misgovernance in the fi sheries sector is manifest in

weak management. The main sectoral priorities for oceanic and coastal fi sheries as well as

aquaculture follow.

Increasing value rather than volume. The recent establishment of the Western and Central

Pacifi c Fisheries Commission makes the timing favourable for some bold, innovative

approaches to increasing the benefi ts from access to fi shery resources. The opportunities

include granting longer term, more secure, more valuable access rights either to earn higher

access fees or to leverage domestic development. Additional opportunities lie in reciprocal

access arrangements between Pacifi c island countries and in dealing with individual boat-

owning companies (instead of foreign fl eets) and making them compete against each other

through tendering and auctioning processes.

Improving transparency in the sector. Regional organisations should take the lead in

promoting greater transparency in the sector. Publicly disclosing licensing details would

reduce corruption, and help the countries of the region drive better deals.

Strengthening private sector organisations. Stronger private sector organisations would be

able to put pressure on governments to perform and could help with negotiating international

frameworks. The establishment in 2005 of the Pacifi c Islands Tuna Industry Association is a

welcome development in this regard.

Developing fi sheries management and technical skills. A partnership between government

and industry to promote training would help to empower workers in the sector to participate

more fully and effectively in the fi sheries business over the whole range of fi shing, marketing

and processing activities.

Maintaining the health of coastal fi sheries through community involvement by drawing on

regional success stories. In the Pacifi c, there are recognised successes in improving coastal

fi sheries management. Fiji’s legal recognition of community fi shing rights is probably the most

comprehensive in the world, and Samoa’s Community Fisheries Programme has become a

global model.

50

forestry

Forestry raises as many questions about the management of growth as it does about its

acceleration. Natural forestry and plantation forestry present governments with very different

mixes of opportunities and challenges.

Shifting to sustainable levels of natural forest logging. The four Melanesian countries have

important natural forestry sectors, but they are in crisis. Vanuatu and Fiji show that sustainably

harvesting natural forests is possible. But natural forest logging in Papua New Guinea and

Solomon Islands is unsustainable and bound to decline in the coming years. These countries

need to decide whether this decline will be managed. Will governments maximise the long-

term revenue and environmental benefi ts from sustainable logging or, as currently, allow their

cheap and quick destruction for short-term gain? To put forestry on a sustainable footing

in the Pacifi c islands region will require a fundamental turnaround in sectoral governance

arrangements, including better implementation of existing policy and legal requirements.

Developing plantations. Growth opportunities in forestry will come only from new

plantations. Fast-growing, speciality, small-wood plantations offer an economic opportunity.

The establishment of large plantations will require issues associated with land tenure to be

addressed, but community-level plantation forestry projects, such as those under which trees

are allocated to individual households, hold considerable potential. Systems of certifi cation

would help exporters gain access to niche markets.

mining and petroleum

Papua New Guinea, Solomon Islands and East Timor are the three Pacifi c island countries with

signifi cant mineral and petroleum reserves. Many of the other countries may also fi nd deep

seabed mining an important source of revenue in years to come. ‘Striking it rich’ should be a

blessing, but all too often it has proved to be a curse. Mineral reserves can provide developing

countries with access to large revenue infl ows, but, in the absence of good governance, can

lead to environmental damage, corruption and instability. Nauru presents a tragic tale of

resource dependence gone wrong. The Pacifi c 2020 process identifi ed three main priorities

for maximising the benefi ts from mineral and petroleum resources and turning mineral

developments into positives rather than negatives.

Managing mineral revenues equitably, effectively and transparently. Mineral policy

frameworks should clearly identify the ultimate benefi ciaries of a country’s mineral resources.

These should justify not only the pattern of distribution within the current generation, but

also the investment of a portion of the revenues for the benefi t of future generations. Where

resource revenues are large, a signifi cant portion should be kept for future generations

under arrangements that ensure intergenerational equity and safeguard against the risks of

corruption and poor political governance. There are no clear principles for dividing revenues

between local stakeholders and the citizenry at large, except that the shares should be



transparent and if possible rules-based rather than discretionary. Transparency is essential if

mineral revenues are to be effectively managed. East Timor has set a good example by joining

the Extractive Industries Transparency Initiative and establishing the Petroleum Fund, which

aims to spread the returns from the country’s massive petroleum revenue over time.

Developing robust policy frameworks for extractive industries. The experience of Papua

New Guinea over the past decade suggests that an unfriendly or unstable fi scal regime will

deter foreign investment in the mining and petroleum sector. The recent upturn in exploration

spending in Papua New Guinea is due in part to high commodity prices but also to an overhaul

of the fi scal regime and the introduction of fi scal stability agreements in 2000. Looking

forward, regulations need to be developed to govern deep seabed mining, including the

defi nition of sea boundaries.

Strengthening government administration. Robust policy frameworks require more than good

policies; they also require good designers and implementers. Major resource projects cannot

move forward without inputs from several government agencies. But government mining

agencies are weak and getting weaker. This needs to be reversed with assistance from both

donors and private partners.

tourism

Many Pacifi c islands are unlikely to be competitive in basic manufacturing because their

remoteness and small sizes lead to signifi cant cost disadvantages (Box 4.1). They need to fi nd

‘niche’ activities where, in return for differentiated or exclusive products, they can charge the

high prices needed to cover their high costs and risks.

Tourism provides an excellent example. A variety of Pacifi c destinations, in both the smaller

and larger countries, can be marketed globally on the basis of their unique features or

general attractions. Despite tourism’s high growth potential, to date tourist arrivals in the

Pacifi c island countries have grown slowly. From 1999 to 2004, annual arrivals rose from

0.7 million to an estimated 0.9 million. These numbers make Pacifi c tourism a small business

by global standards, even compared with other island destinations. But growth in recent years

has improved, and the experience of countries such as Fiji and Cook Islands provide ample

demonstration of what can be done in the broader region.

Addressing external constraints. A major obstacle to boosting tourism in the Pacifi c is weak

infrastructure. Getting to the Pacifi c island countries has to be made easier and cheaper by

running aviation along more commercial and competitive lines. Reputations for social and

political instability, disease risks and high crime rates also deter tourists. In some countries,

land tenure problems need to be addressed if new tourist sites are to be developed. And

foreign investment needs to be welcomed. Addressing these external constraints to tourism

will give it an enormous boost.

52

Developing national tourism policies. Governments need to develop and implement coherent

tourism policies to ensure cross-sectoral coordination and to provide forums in which sensitive

but legitimate concerns such as the impact of tourism on the environment and local culture

can be debated.

Providing tourism-related training. Tourism is a relatively labour-intensive industry, and

training in a range of tourism-related professions will help to maximise the employment

benefi ts of tourism.

Improving marketing and data. Tourist operators can be left to promote their own services,

but governments and industry need to work together to market their individual countries and/

or the Pacifi c as a whole, and to improve the information base for tourism.



The aim of the Pacifi c 2020 process was not only to study each of the nine growth topics

selected, but also to look across them to see what their combined examination revealed. Four

themes emerged as critical for growth: governance and institutions, infrastructure, integration

and regional cooperation, and implementation.

Governance and institutions

Variable standards of governance have produced at their worst instability, violence,

corruption and a breakdown of the democratic process. These problems have exacerbated

the generally slow pace of economic growth and, in some cases, led to economic decline.

Poor governance has a direct impact on the lives of Pacifi c people.

Eminent Persons’ Group (2004)

A clear message from the Pacifi c 2020 process is that reform strategies have to give much

more attention to institutions than they have to date if they are to be successful in establishing

an environment that is conducive to economic growth.

The Pacifi c 2020 background papers all highlighted the poor performance of institutions as

an important barrier to growth. This does not mean that various organisational structures are

defi cient. Rather, more broadly, it means that the basic ‘rules of the game’ that affect economic

activity in the Pacifi c are not conducive to growth (North 1991). For example, the background

paper on private sector investment (Holden 2005) stated that ‘Many foreign investors have

been so discouraged by the processes accompanying investment applications that they have

simply taken their projects to other parts of the world, or given up altogether’. The fi sheries

paper (Clark 2006) found that ‘weaknesses in national governance are a key constraint to

improving the use of the region’s fi sh stocks’, and pointed to a range of governance-related

constraints, including ‘policy instability, slow immigration processes, investment insecurity,

administrative blockages, corruption and poor dialogue between government and industry’.

Internationally, there is increasing recognition that institutions determine long-run prospects for

economic growth.23 The quality of institutions is likely to be particularly important in the Pacifi c

chapter six

Common themes

23 ‘There is now widespread agreement among economists studying economic growth that institutional quality holds the key to prevailing patterns of prosperity around the world’ (Rodrik 2004b).

56

island countries, since other typical constraints to growth – lack of savings and foreign exchange

shortages – are usually absent because of large aid and remittance fl ows and resource rents.

Worryingly, however, international governance indicators normally result in the Pacifi c island

countries being scored on the low side. Indeed, some are classifi ed as ‘fragile states’, to

use the international development jargon. Table 6.1 shows the ranking of the Pacifi c island

countries in relation to three of the governance indicators calculated by the World Bank:

government effectiveness, rule of law and control of corruption. Samoa and Palau are the only

two countries that come in the top half of the ranking on all three indicators. The others are

below average on at least one indicator, and some on all three.

table 6.1 • governance indicators for pacifi c island countries, 2004rankings out of 209 countries, from best (1) to worst (209)

Government effectiveness

(209 countries)Rule of law

(208 countries)Control of corruption

(204 countries)


Fiji 141 109 94

Papua New Guinea 177 157 168

Solomon Islands 206 187 193

Vanuatu 144 102 128

East Timor 188 135 106

Polynesia

Cook Islands 105 71 102

Samoa 86 69 84

Tonga 156 104 140

Tuvalu 159 56 153

Micronesia

Kiribati 145 86 89

Marshall Islands, Rep. of 132 105 157

Micronesia, Fed. States of 119 81 107

Nauru 197 51 …

Palau 72 52 …

Income group

Low income 175 164 156

Lower middle income 125 123 117

Upper middle income 77 79 74

… Not available.

Note: Government effectiveness measures the competence of the bureaucracy and the quality of public service delivery. Rule of law measures the quality of contract enforcement, the police and the courts, as well as the likelihood of crime and violence. Control of corruption measures the exercise of public power for private gain, including both petty and grand corruption and state capture. Data for Niue are not available.

Source: World Bank (2006f ).

Pacifi c 2020 • chapter six common themes


What sort of institutions need to be strengthened in these countries? The Pacifi c 2020 process

found fi ve answers to this question.

• Politics matters for growth, and the underlying political institutions need attention because

of their infl uence on all other institutions of the state.

• Government institutions responsible for delivering law and order and macroeconomic

stability need to be strengthened, and governments need to become more transparent.

• Market institutions need to be allowed to work better by undertaking reforms that improve

infrastructure, reduce regulatory barriers, and improve the protection of property rights,

especially in relation to land.

• Environmental institutions have an increasingly important role in managing growth in the

Pacifi c island countries because of the serious environmental challenges faced not only by

forestry and mining, but also by fi sheries, agriculture and tourism.

• Educational institutions need to be able to ensure better outcomes. A better educated

populace is important for strengthening political governance, improving labour productivity

and expanding the supply of entrepreneurial skills.

It is easier to recommend that institutions be strengthened than it is to actually strengthen

them. It is one thing to know that property rights need to be protected; it is another to know

the best way of going about it in a particular country. Progress will be possible only if, as the

Prime Minister of Samoa has put it, the concept of governance is ‘nurtured in a Pacifi c context’

rather than treated ‘as some foreign ideal’ (Tuilaepa 2004).

It can be especially diffi cult for small countries to develop effective institutions. The alternative

approach is to rely on the institutions of other countries. This can be done either by developing

regional institutions, which is the approach of the Pacifi c Plan (see Box 6.3), or by importing

institutions from other countries. Both of these approaches have a lot to commend them. The

importance of taking a regional approach to institution building arose repeatedly during the

Pacifi c 2020 process, and is further developed in this chapter in the section on integration and

regional cooperation.

Infrastructure

Pacifi c countries generally have lower levels of access to telecommunications, electricity,

improved water and sanitation than similar countries with the same level of income such as

the Caribbean Islands.

Castalia Ltd (2006, p. 15)

From one point of view, the challenge of improving infrastructure is part of the broader

problem of improving institutional performance. Yet infrastructure emerged so consistently

from the various Pacifi c 2020 studies as a fundamental constraint to growth in the region

58

that it demanded to be identifi ed as a separate priority. For example, the background

paper on employment (Hess 2006) noted that the ‘cost of utilities, especially power and

telecommunications, has long been a problem for businesses based in the region as has the

timeliness and reliability of connections’. Transport infrastructure is particularly important for

the geographically dispersed countries of the Pacifi c. Box 6.1 illustrates the transformative

nature of roads in particular with an example from Papua New Guinea.

box 6.1 • the contribution of roads to the development of papua new guinea:

a personal account

Dr Thomas Webster, a former Provincial Administrator of Western Highlands Province of

Papua New Guinea, provides a fi rst-hand account of the impact of roads in the region.

My own home area is a valley with a road leading off the Highlands Highway for about

15 kilometres to the foothills of the mountains to the south. This gravel road was

impassable in the mid-1990s. Vehicles were left near the highway and people walked to

reach the foothills where the bulk of close to 10 000 people live.

People could not carry coffee bags to the highway, so several coffee estates, which were

developed on a cooperative basis by clan groups, went to bush and others ignored their

family coffee plots.

Then towards the end of 1997, the provincial government upgraded and sealed

10 kilometres of that road. It transformed the whole community. The usual morning-to-dusk

gambling (playing cards) and idling by the road side in small groups were no longer visible.

People tended to their gardens and were busy growing and harvesting to take produce to

the Mt Hagen market, about 30 kilometres away. Public buses came into the community to

pick up and drop off passengers. There was a lot of buying and selling in the local markets

as well, with more money circulating.

At the provincial administration level, the impact of road improvements in the province

could also be felt. The provincial government’s 3 per cent sales tax collections in 1998

increased to 1 million kina a month from about 600 000 kina a month. Local business

fl ourished and prospered, and everyone benefi ted.

Now the road to my home has deteriorated due to a lack of maintenance, like most of

the roads in Western Highlands Province. People cannot easily access markets because

the buses no longer travel in from the Highlands Highway. There has been a slump in the

money circulating within the local community and even the business houses in Mt Hagen

are feeling the pinch.

Source: Dr Thomas Webster, National Research Institute, Papua New Guinea.



The infrastructure problems faced by the Pacifi c island countries and their possible solutions

are considered in more detail in the investment section of Chapter 8. At this point, it suffi ces

to note that infrastructure in the Pacifi c greatly lags that in the Caribbean. The differences

are not due solely to geography; they also refl ect poor management. In particular, as Box 6.2

shows, the Pacifi c islands appear to be missing the mobile phone revolution. This example

brings home the point that it is not just a matter of funding; of equal or more importance are

infrastructure policies.

box 6.2 • missing out on the telecom revolution?

Far from being luxury items, mobile phones have the potential to greatly boost livelihoods

and incomes in developing countries by, for example, greatly expanding access to market

information. Yet, as the fi gure below suggests, the telecommunications revolution seems

to be passing the Pacifi c islands by. Mobile coverage is limited and rising slowly compared

with other countries.

mobile telephony in the pacifi c (mainly low and stagnant) and elsewhere(rising rapidly)

0 10 20 30 40 50 60

Solomon IslandsPapua New Guinea

KiribatiMarshall Islands, Rep. of

SamoaVanuatu

TongaFiji

Saint LuciaPhilippines

MauritiusBarbados

Jamaica

Number of subscribers per 100 inhabitants

19972002

What has driven the telecommunications revolution in other countries is the introduction of

competition. The Pacifi c has by contrast generally relied on monopolies. Are the Pacifi c island

countries too small to allow competition? The experience of the Caribbean islands suggests

otherwise. So do recent developments in Tonga. Within a year of introducing competition for

mobile telephone services, the tariff for almost all services dropped by more than 20 per cent

and the numbers of mobile subscribers and internet users both doubled.

Source: Castalia Ltd (2006).

60

Integration and regional cooperation

We now live in a so-called globalised world and our efforts to reduce or adapt to its

negative impacts will continue to test our resilience. What is clear is that globalisation,

even if it does deal an unfair hand to small island economies, is here to stay. There is not

much else to do but accept the challenge and exploit to the full opportunities globalisation

offers to our island nations. For example, the globalisation of the fi nancial system

means that investors can more easily invest outside their own countries. It is up to our

governments to work with our private sectors to attract some of this investment capital to

work for our small economies.

Hon. Tuilaepa Aiono Sailele Malielegaoi, MP, Prime Minister of Samoa (Tuilaepa 2004)

Integration and cooperation are not options for the Pacifi c island countries, but necessities

borne of their small sizes. Regional cooperation has a long history in the Pacifi c, and has

recently received a boost through the Pacifi c Plan (see Box 6.3), which many interpret as a

milestone in the region’s history. Pacifi c 2020 has not sought to duplicate the Pacifi c Plan, but

regional cooperation certainly emerged as a strong theme from the nine roundtables, and this

report highlights several areas that lend themselves to regional approaches.

Many of the immediate priorities for regional cooperation highlighted by the Pacifi c Plan

received support from the studies of the nine growth topics, including quarantine, air and

shipping transport, partnerships with private sector organisations, technical education,

and good governance. Regional approaches can also be used to promote peer review and

to lock in reform commitments based on clear cross-country benchmarks. The regional

agreement to target reductions in various Doing Business indicators is a good example in

this regard (see p. 79).

box 6.3 • the pacific plan

The Pacifi c already has a strong network of regional institutions. By endorsing the Pacifi c

Plan at their 2005 summit in Papua New Guinea, the 16 leaders of the Pacifi c Islands Forum

countries made a powerful commitment to deepening regional approaches.

The Pacifi c Plan is based on the concept of regionalism: ‘countries working together

for their joint and individual benefi t’. It is built around four themes: economic growth,

sustainable development, good governance, and security through regionalism. It provides

a comprehensive roadmap of opportunities to enhance regional cooperation, to share

experience and expertise and to pursue greater integration. It includes 24 initiatives

for implementation over the next three years, and a range of other initiatives for further

analysis and/or later implementation.

While a range of benefi ts are expected, ‘regional approaches to overcoming capacity

limitations in service delivery at a national level, and increasing economic opportunities

through market integration are expected to provide the greatest gains’.

Source: Pacifi c Islands Forum Secretariat (2005).



The Pacifi c Plan is not only about promoting regional approaches to delivering government

services, but also about international economic integration. The small sizes of the Pacifi c

island countries mean that they will always rely heavily on imports, and therefore will always

need to export.

The region has already demonstrated that it can compete in global markets. The success

stories included in the Pacifi c 2020 background papers include copra and cocoa in

Melanesia, coffee in Papua New Guinea and East Timor, squash in Tonga, horticultural

products including root crops in Fiji and the Polynesian countries, vanilla in Papua New Guinea

and Tonga, tourism in Fiji, Vanuatu and Cook Islands, and oceanic fi sheries, especially tuna,

across the region.

However, to date, such cases have been the exception rather than the rule. Because the

Pacifi c island countries are small countries, they have high levels of trade relative to output.

Yet, unlike the rest of the developing world, and especially its faster growing parts such as

East Asia, the ratio of trade to GDP in these countries is stagnant if not falling (Figure 6.1).

Openness is increasing in the Pacifi c in terms of trade barriers, which are tending to fall as part

of the various reform programs implemented in the region (Asian Development Bank 1999b;

World Bank 2002). But international experience shows that, while no country has integrated

without reducing tariffs, simply reducing tariff barriers is not enough (World Bank 2005d). The

‘behind-the-border’ prerequisites for investment (law and order, infrastructure, etc.) also have

to be met.

fi gure 6.1 • trade in goods and services

0

20

40

60

80

100

120

140

1980 1985 1990 1995 2000

As a

per

cent

age

of G

DP

Pacific

East Asia

Developing countries

Data source: World Bank (2006e).

62

Given the importance of remittances, integration in the Pacifi c context extends beyond trade

in goods to integration into the global labour market. This is particularly important for the

microstates, which lack domestic economic opportunities (Box 4.3), and for Melanesia,

because of its rapid population growth. (The labour section in Chapter 8 discusses how Pacifi c

island governments can facilitate labour mobility.)

One path to economic integration is through the negotiation of free trade agreements between

Pacifi c island countries, but more importantly with developed trading partners such as

Australia and New Zealand. As a number of studies have noted (Scollay 2005; Stoeckel 1999;

World Bank 2002), the Pacifi c island countries are not natural trading partners and integration

with larger economies will do more to help growth. Given their heavy reliance on trade in

services (including the export of labour and consequent remittance fl ows) and their need for

foreign investment, it is in the interest of Pacifi c island countries to seek free trade agreements

covering goods, services and investment.

In May 2005 the Pacifi c Islands Forum trade ministers agreed that there was a need to move

towards a more comprehensive framework for trade and economic cooperation among Forum

member countries. The Pacifi c Agreement on Closer Economic Relations, initiated by the

Pacifi c Islands Forum leaders in 2001, provides a mechanism for negotiating such a framework.

Investigating the potential impacts ‘of a move towards a comprehensive framework for trade

(including services) and economic cooperation between Australia, New Zealand, and Forum

Island Countries’ is among the Pacifi c Plan’s priorities.

Implementation

The analysis of the current positions, the determination of future development objectives

and the formulation of appropriate strategies and policies which the islands should fi rmly

put in place in pursuit of such objectives are relatively easy to do. Numerous economic

analyses and accompanying recommendations for island authorities have been carried out

by multilateral fi nancial institutions, United Nations bodies, donor countries, academics and

island government agencies. But the weakness has always been and will continue to be in

the implementation of required policies.

Savenaca Siwatibau (1994, p. 47)

Perhaps the single clearest message from the Pacifi c 2020 process is that poor implementation

of policies is the most serious constraint to successful reform and thus rapid growth. The most

obvious case brought to light was in forestry, where the core problem was summarised in the

background paper as the ‘failure to effectively implement policy and enforce existing legal

requirements’ (Bond 2006).

Poor implementation is also a problem that affl icts reforms. Often, implementation is

slow because reforms are externally imposed. Equally, reform programs can remain



unimplemented because governments know that donors will continue to provide them with aid

regardless of performance.

Ultimately, the implementation of growth-promoting policies is a function of government

ownership, which in turn requires shared understanding and commitment. This is one very

important lesson East Asia can teach to the Pacifi c, the many differences between the two

regions notwithstanding (Box 6.4).

What can be done to deepen reform ownership? First, it needs to be recognised that economic

reforms and growth are going to falter if they are thought of as one-shot endeavours that

can be engaged in without sacrifi ce. Starting reforms in one sector eventually implies

buttressing them with additional reforms in other sectors. Second, all stakeholders need to

have reasonable hope that they will benefi t from the reforms. Not only should the benefi ts of

box 6.4 • can the pacific learn from east asia?

Despite East Asia being the fastest growing region in the world since the Second World War,

it is sometimes said that it is too different from the Pacifi c islands region to be of relevance.

Certainly, the geographies of the two regions are fundamentally different. But, if in no other

regard, the Pacifi c can learn from the East Asian approach to growth.

Various studies have highlighted the features behind rapid growth in East Asia

– export orientation, macroeconomic stability, employment creation, education, and a

favourable environment for private investment. They have also noted the central political

commitment of East Asian countries to growth. These countries concentrated on sharing

the benefi ts of growth (for example, providing basic education for all), but they ensured that

there was growth to be shared by taking a long-term view and adjusting policies that were

not working.

One commentator (A Hughes 1998) has aptly summed up the Asia – Pacifi c island

comparison as follows:

Economic management in a democracy depends on building and maintaining a broad

consensus as to goals and how to achieve them. In most Pacifi c islands such consensus

has evaporated since the rather clear and popular goal of political independence was

achieved. The Asian experience underlines not only the role of effective government,

but the importance of being collectively able to look beyond a three or four-year

electoral horizon, to base economic strategy on a consensus of political, commercial

and community interests, and to sustain policies that forgo current consumption long

enough for the benefi ts to be realised in improved living standards. The Pacifi c islands’

experience tends to support this proposition by default.

Sources: A Hughes (1998); Zagha and Shvets (2004).

64

reform be widely shared (the East Asian experience also brings out the importance of this),

but its unwanted consequences should be contained. Third, strong and genuine community

consultation and participation are needed to promote a shared understanding and ownership

(see Box 6.5 for a recent example from the Republic of the Marshall Islands). Fourth, and

fi nally, successful reforms depend on ‘drivers of change’ – those who have the political will,

show strong leadership, and are able to mobilise local resources in a consensual way.

box 6.5 • promoting dialogue in the republic of the marshall islands

The Republic of the Marshall Islands, with support from the Asian Development Bank, has

held a series of retreats for members of government and members of the private sector and

civil society on what reform means and how to implement it. The fi rst retreats were devoted

to increasing the understanding of group members and their ability to communicate.

Subsequent meetings have explored various reform options. Although the process requires

constant effort and resources, it illustrates what can happen once policymakers, donors and

private sector operators begin to move past what to reform and start to concentrate on how

to implement reform.

Ownership, however important, is not enough for good implementation. Commentators note

that the Pacifi c is full of ‘good locally-owned policies that have not been implemented’ (Duncan

and Gillling 2005, p. 8–29). There are several things that will improve implementation in the

Pacifi c island countries, in addition to greater ownership of and commitment to reforms.

Providing assistance and mentoring to reform champions and implementers will certainly

improve implementation. Diffi culties in implementation often refl ect a lack of capacity. The

background paper on mining notes the sharp decline in capacity to manage mining in Papua

New Guinea (Filer 2006). Many governments in the region fi nd it diffi cult to hire skilled staff.

Establishing monitoring frameworks will also assist in implementing reforms. The Pacifi c

Forum Economic Ministers Meeting of 2005 committed the Pacifi c island countries to halve by

2007 several of the ‘cost of doing business’ indicators. Such an approach enables progress to

be monitored, which in turn can keep the pressure on implementation.

Perhaps the biggest boost to implementation will come from the development of realistic and

prioritised ‘implementable’ reform agendas.24 The background paper on land notes that the

main lesson from previous attempts at land tenure reform is ‘not to be too ambitious’ (Fingleton

2005). And the Pacifi c 2020 paper on regional agreements notes that the large number of action

points embedded in the Pacifi c Plan ‘raises questions about the domestic capacity of PICs


24 As noted in Chapter 1, Pacifi c 2020 is not intended to be an action plan and has certainly not gone through a process to prioritise actions. National growth action plans could draw on Pacifi c 2020 fi ndings, but will need to be country-specifi c and to take into account economic as well as political constraints and opportunities.


to successfully implement them all’ (Australian Treasury 2006). Recent international opinion

also stresses the importance of prioritising growth-promoting reforms, and tackling the most

‘binding constraints’ fi rst (Hausmann, Rodrik and Velasco 2005).

While ownership will help with implementation, successful implementation will reinforce

commitment to and ownership of reforms. This is especially the case when reform

implementation plans target some ‘early wins’, such as telecommunication deregulation,

which could quickly demonstrate the benefi ts of reform (Box 6.2).

Aid donors have a special responsibility in relation to implementation, since they are often

tasked with assisting it. While external technical assistance can play a useful role in helping

to introduce reforms and build local capacity, the reforms being attempted must be demand

driven and feasible if they are to have any sustained impact. Too many reform efforts are donor

led and, perhaps as a result, overly complex and ambitious. Donors must also ensure that they

promote reform by rewarding good performance.


After two decades of slow growth, the Pacifi c island countries are ill placed to meet the

various challenges now confronting them. Only rapid growth will solve the countries’ problems

of unemployment and joblessness, which are causing poverty, frustration and, in some

cases, social instability. Only growth will generate the income to enable their citizens and

governments to confront their serious and worsening health, environmental and urbanisation

problems. There are not many choices for the Pacifi c. The possibility of further collapses

(beyond Solomon Islands and Bougainville) is real. Muddling on, dependent on aid and

remittances, will not be enough.

Pacifi c 2020’s studies of growth factors and productive sectors have highlighted the

constraints and handicaps of the countries in the region and have delivered many sectoral

and economy-wide insights. The importance of governance and institutions, infrastructure,

integration and regional cooperation, and implementation emerged repeatedly. The

summaries provided in Chapters 5 and 6 need not be repeated here. But three fi nal points

may be worth stressing.

First, managing economic growth is as important as generating it, since only well-managed

growth can be sustained, as the examples of the forestry, mining and tourism sectors illustrate.

Second, both the experience of East Asia (Box 6.4) and the importance of equity to the Pacifi c

islanders suggest that commitment to creating opportunities for all to participate in growth

(for example, by providing universal education) will be critical to growth.

chapter seven

Conclusion

It takes time for an economy to respond to new incentives. It takes

time for potential emigrants to realise that new opportunities exist at

home rather than in countries to which many of their fellow citizens

have migrated. It takes time for fi nancial institutions to adapt

their lending practices to the realities of reformed debt collection

procedures. And it takes time for the benefi cial effects of one policy

reform to spill over into other areas or sectors of the economy. That the

process may be lengthy is not an argument against beginning reform

immediately but it is important to bear in mind that patience and

perseverance are essential.

Paul Holden (Asian Development Bank 2004b, p. 173)

68

Third, for reforms to achieve results, they need to be accompanied by perseverance and

patience and to be approached as a long-term project that has only just begun.

Whether the current benign conditions of macroeconomic stability and at least modest

growth become the turning point in the history of the Pacifi c islands and the start of a period

of sustained growth remains to be seen, and will ultimately be determined by the countries

themselves and their leadership. Success will mean different things for different Pacifi c island

countries, but there is certainly a success story to be lived out by every country, from the

largest to the smallest.

Pacifi c 2020 • chapter seven conclusion

part two

Growth topics

part two provides more detail on each of the nine pacific 2020 growth topics.

it draws primarily on the pacific 2020 background papers and the roundtables at which they were discussed.

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73Pacifi c 2020 • growth topics

chapter eight

Growth factors

This chapter covers four crosscutting ‘growth factors’ of importance to growth whatever the

sector. Three of them are the traditional factors of production – investment (or capital), labour

and land. The fourth is political governance, an underlying determinant of both the supply and

the productivity of the traditional factors of production.

Investment and private sector development

The relationship between the private sector and government has always been a relationship

where government wants the private sector to be the engine of growth, create employment

and make sure there’s training and all that paraphernalia that investment takes on. From the

perspective of the private sector, the business community wants the government to be more

transparent, to think long term and to provide a climate for investment to take place.

Mel Togolo, Vice-President, Papua New Guinea Business Council (2003)

Public sector investment is important if well directed (to fi ll infrastructure gaps, for example).

Ultimately, however, it is private sector investment that will drive economic growth in the

Pacifi c island countries – not only by adding to the capital stock, but also by increasing

entrepreneurial capacity. Indeed, there is widespread recognition among Pacifi c island leaders

that the increases in prosperity necessary to generate jobs and income opportunities cannot

be achieved without a dynamic private sector.

In the mid-1990s, several Pacifi c island countries began to adopt wide-ranging reform programs.

More recently, at the 2004 and 2005 Forum Economic Ministers Meetings, the ministers

committed to adopting private sector friendly policies. Macroeconomic stabilisation has

made considerable progress, but implementation of structural reforms less so. Infrastructure

services are limited and expensive. Recent Doing Business indicators of the World Bank Group

show the region remains a relatively costly place to do business in terms of such measures as

the costs of starting, running and closing a business. In some countries, political instability

is at ‘disastrously high levels’ (Duncan and Gilling 2005), and in some law and order issues

and widespread disease are inhibitors to investment. The result is that investment levels are

disappointing and many entrepreneurs have left to seek opportunities elsewhere.

74 Pacifi c 2020 • chapter eight growth factors

Private sector development requires a competent government, but is discouraged by an

overbearing one. Governments need to facilitate private sector investment, not crowd it out

by being directly involved in commercial activities or by imposing burdensome regulations or

excessive taxation. Clearly, the details of a reform agenda will be country specifi c. The broad

issues surrounding private sector development, however, are similar in virtually all Pacifi c

island countries.25

tackling the underlying problems of political instability, law and orderand corruption

In mid-2001 Vanuatu’s Chamber of Commerce surveyed businesses and asked what they

saw as the biggest problems hindering private sector investment in the country. Policy

instability and corruption were cited as the top barriers, followed by a lack of confi dence in

the ability of the legal and judicial institutions to protect investment, particularly land-based

investment (Chand 2002). A survey in Papua New Guinea found political instability, the

breakdown of law and order, and corruption to be the main constraints on investment cited

by business (Manning 2005).

Not addressing these issues is perhaps the reason why reforms adopted so far have not had

a more discernable impact on economic growth. There are no easy solutions, but improving

the broader environment for investment has to be part of the growth agenda in the Pacifi c

island countries. The discussion of governance and institutions in Chapter 6 and of political

governance later in this chapter is relevant in this regard.

strengthening infrastructure

Government policies in Pacifi c island countries often exacerbate the already signifi cant

disadvantages stemming from their remoteness. Ineffi cient ports raise the costs of sea

transport. Air transport costs are high because many governments own airlines and restrict

access by foreign carriers. Internally, governments often own both inter-island shipping and

air services, crowding out private operators. Infrequent high-cost service harms the tourism

sector as well as agriculture and fi shing in the outer islands. Roads are often in very poor

condition, making it diffi cult if not impossible to get goods to markets and information to

farmers (Box 6.1).

Electricity costs are high and access limited. In most Pacifi c island countries, less than half of

the population has access to electricity (Figure 8.1). Only Tonga, Samoa and the Republic of

the Marshall Islands have the high levels of access seen in the Caribbean. Telephone coverage

is limited and the mobile phone revolution sweeping the world is yet to penetrate the Pacifi c

because of the monopolistic model of service provision chosen (Box 6.2). Charging high

prices to businesses for power and telecommunication services, in order to provide low-cost

25 The Foreign Investment Advisory Service country assessments on impediments to foreign investment, and recent work by the Asian Development Bank (six private sector assessments synthesised in Asian Development Bank 2004b) provide a strong analytical foundation.


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services to households and the outer islands, places additional burdens on the private sector.

It also raises the costs of doing business with the outside world – an unfortunate outcome for

countries whose prosperity depends on their ability to integrate with the global economy.

Improving infrastructure will involve a mix of policy changes. Firms should be allowed to

cover their costs. Any subsidies should be carefully targeted and transparent. State-owned

enterprises, which are usually sole providers of infrastructure in the Pacifi c, should be

reformed to run along more commercial lines, and more competition should be allowed. With

increased competition would come the need for more transparency and better infrastructure

regulation. Sharing regulators across infrastructure sectors and indeed across countries

would be the most economical way to proceed in this regard.26 Regional benchmarking of

performance would also help stimulate reforms.

fi gure 8.1 • access to electricity in pacifi c and caribbean island countries

0 10 20 30 40 50 60 70 80 90 100

Solomon Islands

East Timor

Vanuatu

Kiribati

Micronesia, Fed. States

Papua New Guinea

Fiji

Palau

Tonga

Jamaica

Samoa

St Kitts and Nevis

Dominica

Grenada


Barbados

Percentage of population

Note: The data are for the latest year available. The choice of countries refl ects data availability.

Data source: Castalia Ltd (2006, Appendix B).

26 The recently launched East Asia Pacifi c Infrastructure Regulatory Forum <www.eapirf.org> is currently chaired by Papua New Guinea’s senior regulator.


Infrastructure needs are huge in the Pacifi c island countries, and too often money is wasted

– by governments and donors – by spreading funds too thinly over too many projects, or by

neglecting maintenance in favour of new investments. Investments need to be prioritised,

which might mean, for example, concentrating funds on restoring only the most important

roads and wharves to satisfactory condition, and keeping them maintained.

There are already a number of success stories on infrastructure reforms in the Pacifi c, which

point the way forward.

• Public sector reform Public sector reform has turned around the fi nances of the Fiji power

company, Fiji Power (Castalia Ltd 2006), and has contributed to the East Timor power

company’s improvements in revenue (World Bank 2005c). More generally, Samoa provides

an example of how to begin to reform state-owned enterprises (Box 8.2).

• Private sector participation Ports in Samoa have benefi ted from adopting a ‘landlord’

model, in which port services are provided by private companies (Castalia Ltd 2006,

p. 7). In Papua New Guinea, mining companies are now participating in the repair and

maintenance of the Highlands Highway and other key roads, encouraged by the provision of

tax credits. Oil palm companies have been similarly involved in road maintenance in Papua

New Guinea’s West New Britain. Vanuatu’s privately owned electricity and water operator,

UNELCO, presents a mixed picture. It performs better than any of the other Pacifi c utilities on

measures of quality and effi ciency in water and electricity supply, and recovers all operating

and capital costs, but needs to further its reach beyond major urban centres and to reduce

its high costs.

• Competition In Tonga, in spite of claims that the market was too small to support more

than one wireless telephone operator, the introduction of a second company has resulted

in a sharp fall in call charges (Box 6.2). In Vanuatu, breaking the Air Vanuatu monopoly has

allowed in Pacifi c Blue, which has led to immediate, positive benefi ts for tourism (Box 9.10).

In Samoa, the introduction of competing internet service providers resulted in the incumbent

provider reducing prices by half and overall internet traffi c more than doubling (Castalia Ltd

2006, p. 15).

Often the infrastructure focus is exclusively on large-scale undertakings such as

telecommunications. But the rates of return on small-scale infrastructure (rural roads, small

harbours, schools and clinics) can also be high, and there are sensible ways to involve the

private sector and communities in its provision. In Solomon Islands, for example, cost-effective

road repairs and the construction of small jetties have been possible on North Malaita through

community participation schemes. Cash grants can be used to give communities the power

to decide funding priorities and how to implement projects. If the communities themselves

provide the services, the funds can be disbursed when specifi ed targets are met. Supervision

of such projects can be given to private sector agents.


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developing fi nancial markets

The ratio of private sector credit to gross domestic product is low in all Pacifi c island countries.

Financial sectors are dominated by commercial banks and credit is diffi cult or impossible to

obtain for all but the largest businesses. This is partly a consequence of weak frameworks for

pledging assets as collateral, creating constraints on using rural assets to secure long-term

loans. In particular, the lack of clearly defi ned property rights makes it impossible for the vast

majority of people to use their main sources of physical wealth (land) as collateral. (For more

detail, see the next section in this chapter.)

Agriculture in particular faces a fi nancing and investment crisis because the commercial and,

to a large extent, development banks have withdrawn their fi nancial services from rural areas.

There has been virtually no mobilisation of rural deposits, denying the sector a major source

of investment fi nance and seriously constraining growth in rural small and medium enterprises.

Microfi nance and rural banking have potential in the Pacifi c island countries. These are

activities best suited to the private sector. Some governments have started introducing

reforms aimed at encouraging banks to lend to a broader range of investors and smaller

enterprises. With support from the Asian Development Bank, Vanuatu, Samoa and the

Federated States of Micronesia are moving to a system whereby moveable assets (such as

cars and machinery) can be used as collateral. Other countries are planning to follow suit.

Further fi nancial market reform can be encouraged by establishing credit information systems

to increase the availability of credit information on borrowers, building on the starts made by

Fiji and Samoa.

A major commercial bank in Fiji has started a program to attract rural depositors. This has

succeeded well beyond expectations and the bank is now considering offering small-scale

lending as part of its services. An innovative pilot microfi nance scheme by a commercial bank

in Vanuatu has been so successful that it is being expanded as a fully fl edged bank product

and is being studied by other fi nancial institutions in the region as a model that could be

emulated. A PNG bank was able to cut its minimum loan threshold by two-thirds by lowering

its transaction costs.

Some Pacifi c island countries have caps on the interest rates charged by fi nancial institutions.

Rather than helping borrowers, such ceilings discourage the evolution of fi nancial systems.

They penalise borrowers and inhibit the growth of microfi nance, where high risk and high

transaction costs may require interest rates of 30 per cent or more a year.

The PNG experience shows that superannuation and provident funds, if restructured to put

them onto a sound footing, can provide a signifi cant pool of funds for local fi nancial markets.


reforming legal and regulatory systems

In the few areas where Pacifi c island governments have limited regulation and presence,

entrepreneurs have responded strongly. Land transportation services have sprung up in

several countries providing, for instance, good service at a reasonable cost. But often potential

domestic and foreign investors face a bewildering array of legal, regulatory and administrative

hurdles to doing business in the Pacifi c.

The World Bank Group’s Doing Business indicators show considerable variation both across

the Pacifi c island countries and across indicators (Figure 8.2).27 The cost of doing business

is clearly much higher in these countries than in OECD countries. It is not more diffi cult, on

average, than in East Asia, but the Pacifi c has few of the compensating attractions of East Asia

(such as large domestic markets) and can ill afford cumbersome business regulations to add to

its intrinsically high regional cost structure. Indeed, failure to be competitive on even one front

may be enough to dissuade investors. The Pacifi c island countries perform particularly badly

in relation to the cost of enforcing contracts. On average, the recovery of a debt involves costs

equal to 86 per cent of the debt and takes more than 500 days.

fi gure 8.2 • ease of doing business in pacifi c island countriesranking out of 155 countries

0 25 50 75 100 125 150

East Timor

Papua New Guinea

Micronesia, Fed. States of

Solomon Islands

Palau

Vanuatu


Kiribati

Samoa

Tonga

Fiji

East Asia

OECD

Ranking out of 155 countries

Note: The ease of doing business ranking is determined by taking the average of the percentile rankings of the 10 indicators considered in the Doing Business report. OECD and East Asia rankings are averages of country rankings. The choice of countries refl ects data availability.

Data source: World Bank and International Finance Corporation (2006).

27 There are data-related concerns in connection with some of these indicators relating to the low frequency of some of the events they are trying to measure in the Pacifi c island countries.


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The Pacifi c leaders through the Forum Economic Ministers Meeting have committed to halve

the cost of doing business in the region.28 Work has commenced in a number of countries (see

Box 8.1 on Fiji), though a much faster pace is required if the 2007 deadline is to be met.

reforming state-owned enterprises

Almost all state-owned enterprises in the Pacifi c island countries are ineffi cient, and deliver

unreliable and expensive services. In many cases, they are a drain on budgets. Their presence

extends beyond infrastructure into agricultural supply stores, hotels, oil processing plants, and

internet service providers. Their operation crowds out the private sector, stretches very limited

government capacity, diverts government attention from more pressing issues of development

policy, and becomes a pressure point for patronage. Government-owned Air Vanuatu has only

one plane, but a board of 28, all of whom are entitled to unlimited business class travel.

box 8.1 • public–private sector dialogue in fiji on regulatory reforms

Fiji recently initiated an offi cial dialogue between the public and private sectors on

regulatory reform. An initial review of the investment approvals process yielded a large

number of recommendations for changes to policy and processes. The government decided

to set up the Regulatory Reform Task Force to oversee the day-to-day implementation of the

reform process. This body is made up of an equal number of representatives from the public

and private sectors (fi ve each). The government provides the secretariat to the task force.

The World Bank provides technical support to the task force on request.

The Regulatory Reform Task Force is designed to provide a forum for identifying and

discussing important regulatory reform issues, develop new programs to address identifi ed

bottlenecks in the regulatory environment, decide on the appropriate sequencing of reform

initiatives, and monitor the progress of reform implementation.

Since it was established in December 2004, the task force has met seven times. It has

started working on a number of issues to improve the business and investment climate in

Fiji, including the company registration process, contract enforcement, the transparency

of the investment approvals process, and the establishment of a mechanism for obtaining

regular feedback from the private sector on the investment approvals process.

While it is too early to know whether it will live up to expectations, the task force has

already become a well-established, effective means of public–private sector dialogue. It is

envisaged that over time it will play an increasingly important monitoring and advisory role

to promote regulatory reform and thereby improve the investment climate.

Source: Koyamaibole and Roberts (2006).

28 Specifi cally, it was agreed to halve by the 2007 meeting the following 2004 regional indicators: the time taken to start a business, the cost of registration, the time to go through insolvency, and the cost of enforcing contracts.


box 8.2 • public sector restructuring and privatisation in samoa

Samoa has been a leader in public sector restructuring and privatisation in the Pacifi c. In

the late 1990s the government corporatised the Post and Telecommunications Department,

and divested its shareholdings in a number of commercial enterprises. In 2001 it passed a

Public Bodies (Performance and Accountability) Act. Achievements under this Act include

introducing corporate planning disciplines in state-owned enterprises, implementing

appropriate performance reporting and monitoring systems for these enterprises and

having them adopt accounting policies based on International Accounting Standards.

In 2003 the Samoa Government approved a new policy for state-owned enterprises. It

earmarks strategic enterprises that the government wishes to retain in the long term, and

identifi es candidates for privatisation in the short and medium term. On the basis of this

policy, in 2004 the government divested minority shareholdings in three enterprises. In

2005, a 45 per cent share in Polynesian Air was sold to Virgin to create Polynesian Blue.

Further divestments of shareholdings in commercial activities are being considered. Also in

2005, the government and business groups together launched, with support from the Asian

Development Bank, an initiative to establish an Institute of Directors and undertake other

activities geared to improve corporate governance in state-owned enterprises.

Sources: International Monetary Fund (2005e); Asian Development Bank.

Governments need to decide which enterprises they need to keep under their control. Those

that are to be retained should be put on a more commercial footing. The others should be sold.

Samoa’s approach in this area has a lot to commend it (Box 8.2).

working with the private sector to build dialogue and capacity

At present in the Pacifi c island countries there is little meeting of minds between government

and private sector operators, and little understanding of each other’s positions. More open

dialogue between policymakers and private sector operators is needed (see Boxes 6.5

and 8.1 for regional examples). The private sector in these countries is often fragile and

needs nurturing through, for example, training provided in partnership with industry

organisations to build entrepreneurial skills. The recent creation of the Pacifi c Islands Private

Sector Organization is an encouraging development, and the Pacifi c Plan rightly prioritises

collaboration with it.


Land

The commitment of Economic Ministers to address outstanding land issues emphasises the

need to reach some form of compromise between traditional and modern tenure systems

so that the needs of both indigenous peoples and potential investors are met. It must be

recognised that land issues reach beyond the spread of economic portfolios – into social,

security and political issues – and so need support at the highest levels if they are to be

successfully addressed.

Forum Economics Ministers Meeting, Rarotonga, 2001

(Pacifi c Islands Forum Secretariat 2001, p. 6)

Customary ownership of land is deeply embedded in Pacifi c cultures and has provided a safety

net that has helped shield the region from poverty. A high proportion of land is held under

customary tenure (Table 8.1).

table 8.1 • land tenure arrangements in pacifi c island countries29

Registered

Land tenure

Customary State Free

% % % %

Melanesia

Fiji Most 83 8 9

Papua New Guinea Very little 97 2 1

Solomon Islands 12 95 – –

Vanuatu Very little 97 – –

Polynesia

Cook Islands Most 100 <1 0

Samoa – 81 16 3

Tonga Most – – –

Tuvalu Most – – –

Micronesia

Kiribati Most – 66 –

Micronesia, Fed. States of Very little 100 – –

Marshall Islands, Rep. of Little Most – –

Nauru Most – – –

Palau >10 – 70 –

Note: In some cases the fi gures are indicative only and may involve simplifi cation.

Source: Pacifi c Islands Forum Secretariat (2001).

29 East Timor represents a special case, where land may now be claimed on up to four competing bases: underlying traditional interests, titles issued in both the Portuguese and the Indonesian eras, and long-term occupation (see Fitzpatrick 2001).

land


box 8.3 • land tenure and development: the global experience

A recent World Bank report reviewed global experience on the links between land and

development. It found that secure land tenure increases the incentives for land-related

investment and allows for the transfer of property to those who can make productive use of

the land. In urban areas security of tenure leads to more stable communities and improved

access to basic services. As a major asset for most people, land provides the foundation

for economic activity by increasing access to credit markets. Where tenure security is

uncertain, confl ict over land is likely to increase, particularly in the face of population

pressures. Clearly specifi ed property rights have important equity benefi ts, particularly

for women and the poor. In some cases, increased tenure security has led to greater

participation in the labour market.

How can security of tenure be improved? The report makes three main points. First, the

most appropriate and cost-effective method of increasing security and transferability of

land is not necessarily individual title. Recognising customary tenure and fi nding means to

facilitate land exchange through long-term leases can be just as effective in encouraging

security. Second, improving security of tenure also requires the existence or creation

of institutions to enforce legal rights. Third, property rights need not be static, and can

respond to the changing demands for tenure security as countries develop.

Source: World Bank (2003a).

Maintaining customary land systems in their current form will not meet emerging needs,

especially given the fast-changing demographics and aspirations of Pacifi c citizens. Without

processes in place to manage the migration of people to urban areas (who then settle on other

groups’ customary lands), and without mechanisms to ensure landowners participate fairly in

the benefi ts of wealth generated from their customary lands, the sort of devastating confl icts

already seen in Solomon Islands and Bougainville may become increasingly commonplace.

International experience teaches us that no country has prospered without systems that

protect the property rights of individual investors, but that there is more than one way to

secure rights over land (see Box 8.3).

taking an incremental approach to land reform

Land tenure is a diffi cult and sensitive issue, but this cannot be an excuse for inaction. The

challenge for governments in the Pacifi c island countries is to steer changes in land tenure

arrangements in support of economic growth in such a way that individuals and other

investors are able to access the development potential of land, while customary ownership

structures remain protected.


The main lesson to be drawn from previous, largely unsuccessful, attempts at land tenure

reforms in the Pacifi c is not to be too ambitious. Land tenure reform needs to be incremental

for two reasons. First, such reform is an enormously complex process that affects the lives of

all at the most fundamental social, cultural and economic levels, and so necessitates careful

balancing of diverse and competing interests. Second, Pacifi c governments do not have the

fi nancial and administrative resources to implement wide-ranging reforms in land tenure.

Consistent with all of the above, the way forward for many Pacifi c island countries seems to

be a blending of ownership at the group level with long-term leases setting out the rights of

individual developers to use the land.

How such an approach is best put into action will vary from country to country. Research

into existing measures to reform land tenure in countries across the Pacifi c will be vital for

analysing policy options and moving the land tenure debate forward.

A functioning land tenure system requires, in addition to clear decisions over what rights in land

can be transferred, policies for recording land rights, rules for determining who is entitled to

enter into land deals, arrangements for settling land disputes and a strong land administration.

In what follows, various options for meeting each of these requirements are presented.

Strengthening property rights will not be a panacea for the Pacifi c. Rather, it is one challenge

among several in the wider agenda of economic reform. Tonga has had individual registered

land rights for many years but still sees very little lending on rural mortgages and low

economic growth. Action in the other areas discussed in this report will also be critical.

Nevertheless, the long-term future growth of Pacifi c island countries will depend in part on

how well the challenge of reforming land tenure is managed.

recording land rights

One of the characteristics of customary land tenures is that they are not usually written

down. Tenure reform thus invariably involves moving towards a system in which rights over

land are recorded.

It is not realistic to record all the existing customary rights. A better, more pragmatic, way

forward is to ensure that modifi cations to customary rights are recorded. This would involve

recording the rights of the person who will be developing the land, how the benefi ts of the

development will be shared, what controls will apply to that development, and perhaps

what residual rights to use the land the customary owner will continue to enjoy. This task

of recording development rights and responsibilities over land can be approached in

different ways.

Record agreements or register titles, or both. It is possible to design a simple system for

recording agreements between parties over the use of land. This would provide documentary

evidence of an individual’s interest in the land for use by banks or in the event of a dispute.

land


Although such agreements do not provide a legal guarantee, they have been used successfully

in the past to raise loans for development.30 Such agreements are less complex than a system

of systematic title registration, which, while representing a more secure form of interest in

land that is guaranteed by law, also involves a much more demanding process of investigation,

determination and registration. The small Pacifi c island countries could also have a hybrid

system that allows for both, providing for land titling in priority areas where the costs are

justifi ed, and land recording in other areas.

Apply a systematic or sporadic process to land registration, or both. As already noted,

systematic land registration can be a lengthy and complex operation. It requires skilled

personnel (adjudicators, surveyors, etc.) and considerable funds. The alternative is to

undertake sporadic land registration, which focuses only on land people apply to register. The

drawback with this approach is that it deals with the needs and wishes of only one party, not

of all those with interests in the land. Pacifi c countries may seek to meet demand for stronger

land rights by allowing for both systematic and sporadic processes – registration of titles

where the process is systematic, but only the lower level recording of land rights where the

process is not so guaranteed. This gives the land system more fl exibility, allowing systematic

registration of high-priority areas and a lower level of registration for other areas.

Should countries make registered titles conclusive? Where the law makes the registered title

conclusive evidence, as under the Torrens system, it cannot be overturned. Such a high level of

protection should be given only where there is a high degree of confi dence in the investigation

and determination of land rights. This might apply if a systematic approach to land registration

is followed, but not if a sporadic approach to land registration is taken or if only agreements

rather than titles are recorded. In these cases documentary evidence will still be useful in

establishing land rights, but they will not be defi nitive.

facilitating land dealings

Who should be allowed to enter into land transactions? For land tenure reform to succeed, the

government must also put in place a legal and administrative environment that allows legal

land dealings to take place effi ciently and cost effectively. A variety of mechanisms, with a

range of strengths and weaknesses, currently exist in the Pacifi c to regulate the land market

(Box 8.4).

The ideal regime would be one that involves simple processes, leading to the informed consent

of the landowners, a fair arrangement for sharing benefi ts, and a reliable basis for investment

in the planned development of the land. Key issues include the following.

30 Since the 1960s, simple Clan Land Usage Agreements have been used in Papua New Guinea to secure loans for individuals to develop parts of their customary land.


box 8.4 • models for land dealings in the pacific

In Fiji, the negotiation of land dealings for development through the Native Land Trust Board

has allowed most of the available customary land in Fiji to be brought into development.

Various aspects of the board’s operations have been criticised – its politicisation, high

costs, the division of rents, the rent-fi xing formula, and the lack of fl exibility over lease

purposes and terms. Some Fijians feel it may have outlived its usefulness. It has qualifi ed

staff and is costly to operate, using up to 25 per cent of land rentals to cover its expenses.

Although the system may need to be improved, it provides a valuable model for other

countries to consider.

In Papua New Guinea, the lease–lease back system has received attention as a way of

giving outsiders a registered title in customary land. Much new oil palm planting has taken

place under lease–lease back arrangements. It is a time-consuming system, however, and a

roundabout way of achieving a registered title.

In Australia, the Aboriginal Land Councils of the Northern Territory have the role of

consulting traditional owners on any proposal relating to use of their land, and negotiating

on their behalf. The members of the Land Councils are chosen by the Aboriginal owners and

employ a staff of professional advisers. The system works well, but is expensive.

The Cook Islands’ Leases Approval Committee was established to deal with the special

problems arising where non-resident Cook Islanders lease home sites to the residents

of Rarotonga.

In New Zealand, Maori land cannot be alienated without the approval of the Maori Land

Court, which carries out various checks on the fairness, etc. of the dealing.

Source: Fingleton (2005) Pacifi c 2020 background paper.

land

Allowing direct dealings. To date, the main method for acquiring secure titles for development

purposes in the Pacifi c has been to use government as an intermediary. When the state

apparatus is weak, a better alternative would be a system allowing for direct dealings between

the two parties – the customary landowners and the developer. Safeguards do need to be put

in place, not least to prevent exploitation. This is the proper role for government: to establish

and oversee the framework for land dealings and then to register the land and/or lease. In

Vanuatu, for example, direct dealings are allowed, but the government must fi rst approve

an outsider to negotiate with the customary owners, and requirements are laid down for the

negotiations and contents of the eventual agreement.

Balancing the need to protect parties with the need to facilitate genuine dealings that will lead

to sustainable growth and benefi ts is not an easy matter. The key principle is that the controls

put in place should be balanced. They should be reasonable, transparent and not cause


unnecessary delays. To minimise the risk of corruption and to ensure commercial realities are

recognised, consideration should be given to establishing control mechanisms that have both

public and private sector membership. Any approval process should be kept under review and

adjusted if it causes problems.

Representing customary owners. Decisions also have to be made about who can represent

the customary landowners, and who appoints agents and other intermediaries. In the Pacifi c

island countries, rarely can one person act alone in making an important decision over a

group’s land. However, questions arise over whether chiefs, ‘big-men’, clan leaders and senior

male members, for example, have the authority to act on behalf of their communities in land

decisions. Certainly, there are good arguments on public policy grounds for ensuring decisions

over a group’s land are democratic, involving all affected members – male and female. The key

principle must be that the model is reliable and protects the interests of both the landowners

and the investors.

Accessing land for public use. Historically, in the Pacifi c island countries land needed for

public purposes such as schools was acquired from customary owners by government. Many

of these early acquisitions have been challenged by the current generation of landowners,

and governments are now fi nding it almost impossible to acquire new land, even for public

purposes that clearly benefi t the local community.31 There are examples of landowners

exploiting their position to demand excessive rents, thereby pushing up the costs of wharves,

roads and other public infrastructure. A possible solution might be some form of permanent

dedication of the land, so that it remains in customary ownership, but must be used for a

specifi ed public purpose. A formula providing a controlled fl ow of benefi ts to landowners for

the use of their land would probably still be required.

establishing dispute settlement machinery

There is no doubt that land disputes are an impediment to social stability and economic

growth in the Pacifi c. Some have a long history, sometimes dating back to ancient battles for

the expansion of tribal territory. More recently, serious disputes have arisen where people

have migrated from outer islands or remote districts to settle on urban lands belonging to

other people. Disputes also arise between governments and people claiming compensation for

state-owned land.

The main ways to reduce the level of land disputation are to facilitate direct dealings, as

discussed above, and to ensure that the leases or other agreements provide a reasonable fl ow

of benefi ts to the landowners over time. Specifi c provisions can also be helpful in reducing

the likelihood of disputes arising, such as provisions for continuing consultation between the

parties and for periodic reviews of the terms and conditions of an agreement.32

31 For example, Chand (2001) cites the diffi culty of obtaining land as a barrier to extending Papua New Guinea’s road network.

32 One of the immediate causes of the Bougainville confl ict was failure to carry out the periodic review provided for in the mining agreement.


But even under the best system, disputes will arise, especially at a time of major demographic

change and dislocation which parts of the Pacifi c are experiencing. Where land disputes do

occur, effective mechanisms need to be in place to handle them. This will involve action on a

number of fronts.

• In practice it seems that establishing special courts and special settlement procedures is the

most practical way of resolving land disputes, primarily because they operate more fl exibly

than the normal courts. Vanuatu recently introduced a system for land dispute settlement,

and Solomon Islands is considering a new system.

• For cost and effi ciency purposes, it would seem very sensible for the parties to a deal

involving customary land to provide for mediation and arbitration of any disputes, using an

independent party agreed to by both sides.

• Pacifi c island governments need to decide whether and under what conditions lawyers

should be able to appear in land dispute settlements. While it may be necessary to exclude

lawyers from appearing on behalf of parties to the dispute to make sure that the problems

are handled in a more informal and fl exible way, lawyers can provide an essential service in

protecting their client’s interests. Certainly, in cases where a dispute involving government

land arises, it is in the public interest that the state be well represented. In Papua New

Guinea, claims against the government succeed far too often because government lawyers

fail to represent the state’s interest.

improving land administration services

Improving land tenure arrangements will require not just better policies in the various areas

discussed above, but much better administration.

Even though land administration services in the Pacifi c island countries are confi ned mainly

to administering leases over state-owned land, they are weak. Delays in granting leases and

processing simple dealings are rife and cause major problems for the public and investors.

Such frustrations lead transactors to use ‘infl uence’ or pay money to get simple matters

processed. It is diffi cult to plan for extending the involvement of government, particularly into

the much more sensitive areas of registering customary land, recording dealings in customary

land, and settling disputes over land, when the present level of government service is low and

tainted by corruption.33

Probably the main constraint on land tenure reform in the Pacifi c island countries is not the

sensitive nature of the issues involved, but the capacity and quality of land administration

services. For example, if the results of land dealings (leases, mortgages, etc.) are not entered

accurately and effi ciently in the land register, it will soon lose its value as a reliable record

of the interests in registered land. Examples of the problems faced in various areas of land

administration by Papua New Guinea are presented in Box 8.5.

land

33 A 2005 PNG land summit ‘agreed that people did not have confi dence in the administration of the 2 per cent of alienated land. One of the three main recommendations to emerge was for the government to improve records and administrative mechanisms so as to generate confi dence before the more than 90% of land currently held under customary land tenure systems could be registered. Otherwise, there is a fear that, once land is registered, they will lose it’ (Thomas Webster, National Research Institute, Papua New Guinea, pers. comm., March 2006).


box 8.5 • weaknesses in land administration in papua new guinea

Papua New Guinea’s Land Groups Incorporation Act of 1974 provides for the legal

recognition of customary groups, and gives them powers to decide the use and management

of their land. Each incorporated land group has its own constitution, covering matters such

as its membership, governing committee and how decisions are made over its land. While

the appropriateness of this policy is debatable, it is clear that the administration of the

system is unsatisfactory. Many groups are registered as owners of the same piece of land.

And there is only one government offi cer responsible for supervising more than 10 000

incorporated land groups, as well as incorporating new ones at the rate of about a dozen

a day. Clearly, this is an impossible task and it is not surprising that the incorporated land

group system is not working well.

Papua New Guinea has a well-structured legal and administrative system for land dispute

settlement in place. It too, however, is starved of resources. As a result, most of its vital

elements are not operational. Provincial land disputes committees rarely meet, provincial

land courts do not sit as required, land court records are not kept, land magistrates are not

trained or inspected, and land mediators are reluctant to undertake their duties because

they are not paid their small allowances.

Source: Fingleton (2005) Pacifi c 2020 background paper.

Insuffi cient funds and a lack of trained staff and technical facilities constrain attempts to

improve the level of service to consumers. More emphasis on cost recovery would help to

ease the funding constraint. While land taxation may be problematic, when introducing a

land registration system it is reasonable to link it to some kind of fee for service – either by

imposing a tax on the registered land or by charging a fee for its registration.

The key constraint, however, is one of ineffi cient administration. To a large extent, success

in improving land administration depends on more widespread reform of governance and

government institutions (see the discussion in Chapter 6). Issues that are administratively

relatively simple, such as staff recruitment and retrenchment, have proven to be major obstacles

in the Pacifi c. Improving effi ciency might mean a rationalisation of existing services, including

dropping or contracting out some technical operations. Decentralisation to make services more

accessible and appropriate to consumer needs is also an important goal, but may not help if

the binding constraint is a lack of technical skills. It is important to recognise that land tenure

reform requires a wide range of expertise such as adjudication, surveying and registration.


Employment and labour markets

Perhaps the most critical issue confronting Pacifi c island countries is how to provide all

people with a secure, sustainable livelihood that meets their aspirations and counters

the growth of poverty. A growing proportion of people in the working age-group need a

cash income, yet the formal sector caters for only a minority of workers, and economic and

demographic trends suggest that the gap between the demand for and the availability of

paid employment will almost certainly grow.

United Nations Development Programme (1999, p. 73)

As discussed in Chapter 3, the Pacifi c island countries face a serious employment challenge.

Their labour markets are characterised by large numbers in the job-seeking age range with low

levels of technical skill and by local economies that are not growing in ways that create the

forms of employment likely to absorb, let alone inspire, young people.

Unemployment is diffi cult to measure in subsistence economies, but, as discussed in

Chapter 3, available estimates indicate high levels of joblessness, especially in urban areas.

Youth unemployment in many of the Pacifi c island countries is more than double the total

unemployment rate (World Bank 2006c).

Why is joblessness so high in these countries? The island countries score quite well in

the Doing Business indicators for labour market fl exibility.34 Some analysts note that the

dominance of the public sector pushes up private sector wages, at least for the skilled, and

thus reduces employment and/or competitiveness (a ‘Dutch disease’ effect, associated with

high aid fl ows). Others note that the public sector will continue to dominate until the private

sector grows.35

The underlying cause of the joblessness problem in the Pacifi c island countries is slow

economic growth, coupled with some of the world’s highest rates of population growth, and so

an inability to absorb an increasingly large pool of surplus labour. If this is correct, most of the

solutions to unemployment will lie not in the labour market, but in the policies discussed in the

previous section to boost investment – including the need to reorient the currently overbearing

nature of the public sector.

Nevertheless, the Pacifi c 2020 process distilled four main sets of employment-related policy

challenges: to strengthen human capital, in particular targeted skills; to combat discrimination in

the labour market; to enhance labour mobility; and to boost opportunities for self-employment.

labou

r

34 The average ranking for the Pacifi c island countries (those in Figure 8.2) is 22 (out of 155 countries). The Federated States of Micronesia, the Republic of the Marshall Islands, Palau and Tonga all come in the top 10, with Palau fi rst, and Tonga second. The Asian Development Bank (1999a, p. 171) confi rms that ‘Specifi c labor market reform issues that arise in other countries, such as government interventions that inhibit the fl exibility of labor markets, do not appear to be of major concern’. See Levantis (1997b) on labour market deregulation in Papua New Guinea in the early 1990s, and also Chand (2003).

35 See Asian development Bank (1999a) for a very interesting discussion of this issue.


strengthening human capital, particularly skills

Workers are only as productive as their health and education allow them to be. As shown

by the World Bank (2006c), while the coverage of key education and health services has

expanded in most countries, leading to improvements in social outcomes, progress has been

uneven. Pacifi c island schools suffer from high dropout rates and low student achievement

levels.36 The gains realised in health indicators over the past decades are threatened by

growing levels of non-communicable diseases such as diabetes and communicable diseases

such as HIV/AIDS.

While more positive health and education outcomes are likely to take time to show, labour

market skill shortages could be addressed relatively quickly. However, vocational training

in Pacifi c island countries has not been a success story. A recent review by the Asian

Development Bank (2005b, p. 1) found that:

… [T]he results of [skills training] programs in the Pacifi c have been generally disappointing.

They have in many cases been driven by supply rather than demand, costly, diffi cult to

implement, and unresponsive to changing labour market demands. Neither have they

helped to reduce youth unemployment.

There are exceptions, such as the high-performing regional network of maritime training

institutions (Box 8.6). Their close collaboration with industry and their use of internationally

accredited curriculum standards point the way forward for the broader vocational training

sector in the Pacifi c.

combating discrimination in the labour market

Women are heavily involved in the informal sector. In Solomon Islands in the early 1990s,

almost a half of all women working in the cash economy were self-employed, and a third of

these self-employed women were the sole income earners for their households (Ward and

Arias 1995).

While government gender policies will not infl uence the informal sector directly, there is

clearly a role for policy in removing formal barriers and changing attitudes that limit the

opportunities for women and any other group discriminated against in the workplace.37 This

would encourage the breakdown of both formal and informal barriers to gender equality in

labour market participation. The removal of such barriers would be extremely productive, as

the traditional gender-based roles in the Pacifi c have prepared women for employment better

than they have prepared men. Many of the roles reserved for women (gardening, livestock,

36 Education indicators show that, while net primary enrolment rates have been high, rates of primary school completion and of transition to secondary school remain a concern.

37 The UN-sponsored campaign (from 16 February to 8 March 2006) to promote women in the media in Fiji is a good example of how to increase women’s role in the economy.


labou

r

child rearing) involve the sort of thinking that develops economic skills, such as effort–reward

calculations, forecasting and planning. By contrast, traditional male roles tend to involve social

and political activity focused on status and power rather than productivity.

integrating with international labour markets

Worldwide, international migration is growing, and is becoming increasingly important for

developing countries. This is nowhere more true than for the Pacifi c. Migration has always

been important for Polynesia, and there are now more ethnic Polynesians living outside the

region than in it. Remittances to these countries are much larger than their merchandise

exports, and sometimes larger than their aid. Tonga and Samoa are among the top 10 countries

in the world in terms of dependence on remittances.

But migration can also be important to larger countries, as Nepal and the Philippines have

shown from outside of the region and, in recent years, Fiji from within it (see Box 4.2). As many

developed countries are aging and are facing labour shortages, international labour migration

is likely to expand.

box 8.6 • how to deliver vocational training: the pacific network of maritime

training institutions

The Pacifi c’s network of 12 maritime training institutions is an example of a successful,

regionally led vocational training system, which has been able to use its links with industry

to develop a curriculum to meet the demand for skilled workers. The training institutions

are located in Solomon Islands, Kiribati, Tuvalu, Tonga, the Federated States of Micronesia,

Papua New Guinea, Fiji, Samoa, Vanuatu, the Republic of the Marshall Islands and French

Polynesia. Through the network, international seafaring has become an important source

of employment and income in the region. In 2003, an estimated 4000 Pacifi c seafarers

engaged in international shipping remitted approximately US$19 million in foreign

exchange to their countries.

The success of the institutions is largely attributable to coherent management, close

collaboration with industry, and reliance on international standards. They are jointly

supported by the Secretariat of the Pacifi c Community, through its Regional Maritime

Programme, and by the Pacifi c Islands Maritime Association, whose membership

includes industry participants such as shipping operators and port authorities, as well

as government safety and regulatory authorities. This balance of membership from

administrative, regulatory and industry bodies ensures that the centres are simultaneously

able to satisfy the requirements of curriculum relevance to industry, accessibility to

students, and accreditation of courses by the International Maritime Organisation.

Source: Secretariat of the Pacifi c Community.


Migration is often viewed in the Pacifi c in negative terms, as it arouses fear of a ‘brain drain’

and may exacerbate skill shortages (in both the private sector and government). But recent

years have tended to paint a different and much more positive view of migration. There is

now more appreciation of the size, value and stability of remittances to the Pacifi c (Asian

Development Bank 2005c), which have had a particularly marked impact on more remote

countries such as Kiribati (Borovnik 2003). One obvious step governments can take in

association with fi nancial institutions is to review and attempt to reduce the cost of remittance

fl ows. This may be done by improving the fi nancial infrastructure supporting these fl ows by, for

example, reducing delays in cheque clearance, publicising and working to reduce transaction

costs, and improving the availability of banking services in rural areas.

Recent evidence also suggests that the prospect of migration increases incentives for

education and training (Asian Development Bank 2005c). It is quite possible that the prospect

of migration leads to a ‘brain gain’ rather than a drain. Returning migrants bring valuable skills

and networks. And, importantly, migration reduces unemployment and, by acting as a safety

valve, eases social tensions.

Thus, overall, international migration should be seen as an opportunity rather than a threat.

Given the well-documented and much discussed disadvantages many Pacifi c island countries

face in developing export industries (Box 4.1), they should view themselves as having a

comparative advantage in exporting labour. The Philippines is a good example of a country that

has consciously adopted a policy of promoting labour exports. As that country’s experience

suggests, while migration will not in itself make a country rich, it can be a very important

income generator and stabiliser. Today over 8 million Filipinos work overseas and send

remittances home equal to 14% of GDP (O’Neil 2004, Asis 2006, World Bank 2006d). Vietnam

has followed a similar policy, albeit on a much smaller scale (Ishizuka 2001). East Timor is

currently planning a pilot Emigrants Worker Program. As these countries have done, other

Pacifi c island governments can also attempt to facilitate the movement of labour through

bilateral negotiations and licensed migration schemes with richer countries.

Pacifi c island country governments should focus on providing their populations with the

skills they need not only to fi ll domestic skill gaps but also to compete in international labour

markets. There are already successful examples within the region of Pacifi c island workers

competing in global labour markets – such as the seafarers of Kiribati and Tuvalu. There are a

range of opportunities emerging, especially for those with nursing and trades skills.

To take advantage of these opportunities, more attention needs to be given to training. The

use of international standards and alliances with international businesses will help to promote

mobility. The network of maritime colleges (Box 8.6) is a good example of what is needed.

But there are also lots of examples of Pacifi c island governments not responding to migration

developments. For example, despite the exodus of nurses from Fiji to work abroad, the number

of places for nursing students in Fiji has not increased, though the number applying to study

nursing has, not surprisingly, increased sharply.


labou

r

The governments of Pacifi c island countries have limited budgets, and will struggle to

expand training networks. Funding primary education is proving to be challenging enough.

Cost-recovery mechanisms need to be improved, donor support obtained, and regional

approaches adopted, as envisaged under the Pacifi c Plan. The Australian Government

initiative to establish the Australia-Pacifi c Technical College in the region, with a network

of campuses delivering Australian-standard qualifi cations, is a good example of the way

forward in this regard. An internationally accredited Pacifi c College of Nursing has also been

proposed. An economic analysis of this proposal has estimated a benefi t:cost ratio of 6:1

(Duncan 2005).

Migration is a two-way process, and governments need to remove regulatory impediments

to immigration, which can be signifi cant. There is often a perception that foreign nationals

working in local labour markets are taking jobs away from local people, but experience shows

that imported skilled workers generate local employment (Asian Development Bank 1999a).

Papua New Guinea is currently undertaking a review of visa requirements with a view to

streamlining them.

Pacifi c island countries have largely dealt with shortages in personnel – for example, doctors

and teachers – by recruiting foreign professionals through donor-supported programs and

retirees. Governments could also experiment with incentives, such as improved working

conditions and higher remuneration, to retain staff in remote areas. Other options include

providing incentives to attract emigrants back home, such as the return fund and the family

incentive scheme in Cook Islands or the ‘homecoming program’ for nurses in the Caribbean.

boosting opportunities for self-employment

Subsistence agriculture and informal urban activities constitute the overwhelming bulk

of employment in the Pacifi c island countries. Governments need to recognise that most

employment in these countries is self-employment or family employment, and defi ne policies

accordingly. Regulatory barriers to the implementation and operation of business activities in

the informal and subsistence sectors should be removed. This type of barrier is evident when

local authorities decide to ‘clean up the town’ and remove street vendors, thereby limiting a

lively segment of micro-business activity.

Establishing educational, training and outreach opportunities to promote entrepreneurial

skills can be done both within the school curriculum and for adults, with implementation

contracted out to the private sector. Skills to be targeted include entrepreneurship, fi nancial

management, and marketing.

Finally, governments can improve the database on the informal sector by, for example,

including the informal and subsistence sectors of the economy in national employment and


output statistics if this is not already the case.38 Such a defi nitional exclusion prevents the

economic activity of many of the large proportion of people who engage in the informal sector

from being adequately surveyed, and can distort policy debate.

Political governance

… [G]overnance and good governance are terms that may be new to most of us, but the story

of governance and the emphasis on good governance are as old as civilisation itself … In the

Pacifi c, there are many incidents of social unrest, political turmoil and breakdowns of law

and order that bear justifi cation for the need to substantially improve political governance.

Mose Saitala (1999, pp. 1, 3)

Much analytical and practical effort has been devoted to strengthening various aspects of

governance in the Pacifi c island countries. In particular, economic policies and public sector

reform have received a lot of attention from governments and their donor partners. Yet a

precursor to sustained improvements in these areas – good political governance – has been a

far less visible focus of attention in these countries in discussions of growth.

Political governance relates to the way in which political power or authority is distributed and

exercised, and by what processes and institutions. The risk in not seriously addressing political

governance is that, unless political dynamics change, no other attempts to fi x governance will

‘stick’ and, without good governance, sustained rapid growth will remain elusive.

political governance problems: clientelism and fragmentation

The Pacifi c island countries are largely democracies, and it is generally believed that

democracy is a system in which the will of the majority is served. But it does not appear that

democracy serves these countries as well as it could. Corruption levels are relatively high

(Table 6.1). Effective sovereignty is in decline as countries struggle to deliver basic services,

including law and order (Asian Development Bank – Commonwealth Secretariat 2005).

Shifting parliamentary allegiances mean executive government is often unstable. Politicians

often take little interest in economic policy. Many operate under short time horizons, knowing

that they are unlikely to last more than a single term in offi ce. In some countries, more than

half of sitting members can expect to lose their seats at election time. There are rays of

hope. A recent set of national integrity assessments for the Pacifi c island countries found

that corruption was seen to be declining in Samoa (Transparency International 2004). But,

overall, economic outcomes from Pacifi c political processes – including a lack of growth and

jobs – have been disappointing.

38 Under the 1993 UN System of National Accounts, subsistence production is to be included in the national accounts, with output for own use to be valued at average market prices. Some Pacifi c island countries follow this practice (for example, Papua New Guinea); others do not (for example, Solomon Islands).


The fundamental question that any analysis of political governance in the Pacifi c island

countries has to grapple with is: why doesn’t democracy serve the majority better? Research

carried out in the region and elsewhere suggests two reasons: ‘clientelism’ and fragmentation.

On the former (Keefer 2004), it is often observed in developing countries that political

competition is not between competing policies or over claims of which party can better deliver

basic services such as health and education or otherwise promote national welfare. Rather,

political competition takes place almost exclusively at the micro or local level. Parties are

weak; competing policies are absent. Voters are wooed by offers of money, jobs and other

help at the individual level. Thus politicians become patrons, their supporters clients, and

democracy as clientelism or ‘localism’ is observed.39

Clientelism is widely seen throughout Africa. For example, Booth (2005, p. 1) writes:

… throughout the region … political competition is about servicing informal networks,

enriching some and providing low-level protection to others. It does not, as a rule, operate

to place pressures on incumbent governments to perform in the public interest. This has

the effect that policies to achieve public objectives are never produced, or are written at the

technocratic level but not given political support and therefore not properly implemented.

Many would also suggest that clientelism is thriving in the Pacifi c. For example, it has been

remarked of one part of Papua New Guinea that:

… people have come to regard government as the major, or only, source of opportunity and

fi nance. Having a friend in national government is seen as necessary for economic success,

and election to offi ce in the provincial assembly and parliament is keenly contested (Brown

1989, p. 245).40

Unfortunately, clientelism can be self-reinforcing. Once a system becomes dysfunctional,

promises to deliver better basic services lack credibility, and thus aspiring politicians have

only their favours to fall back on. This analysis suggests one glimmer of hope – providing

voters with more information so that they can judge whether national policies are working (for

example, whether schools or roads are getting better).

Parts of the Pacifi c islands region are also characterised by ethnic fragmentation. Numerous

studies have shown ethnic fragmentation to be associated with poorer development

outcomes (Easterly 2001; Reilly 2004). At the political level, ethnic fragmentation leads to the

development of political leadership focused on wealth redistribution (‘fi ghting over the pie’)

rather than wealth creation (‘increasing the size of the pie’).

Clientelism and fragmentation reinforce each other’s effects. The ethnic group leader becomes

the patron and the group members his (or her, but nearly always his) clients. With a large

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39 On ‘localism’, see Morgan (2005) who writes that ‘… the political cultures of Melanesia lend themselves to patronage politics because of local peoples’ needs for approachable political leaders. No Melanesian MP can afford to ignore local demands in favour of national or regional ones …’.

40 Quoted in Reilly and Phillpot (2002).


number of patrons fi ghting for political spoils, and a disillusioned electorate, ‘anti-incumbency’

and a high turnover among politicians become the order of the day. This shortens the time

horizon under which politicians operate, adding to pressures to engage in corrupt behaviour

and reducing even further the relevance of national and systemic policies and reforms.

political governance solutions?

It is one thing to diagnose a problem, but another to provide solutions. Political governance is

not an area where there are easy answers or ‘best practices’ waiting to be adopted. Individual

Pacifi c island countries need to decide for themselves what needs to be done to enhance the

accountability of political leaders to the broader electorate.41 Country circumstances matter,

and local legitimacy is key. For example, as Larmour (2005, p. 3) notes:

The best model of political governance for a Polynesian country, characterised by common

linguistic and cultural heritage and a tradition of deference towards leaders, may be quite

different to that which will work in a Melanesian country, where there is huge diversity in

languages and cultures, and where leadership is more contested.

While there are no simple answers, there are common strategies. Attempts to improve political

governance must try either to strengthen the ‘supply side’ of political governance or to

promote the ‘demand’ for good political governance.

strengthening electoral systems, oversight bodies and parliaments

The integrity of the electoral process and well-functioning parliaments are critical to good

political governance. The electoral system should encourage parliamentary members to look

beyond their own electorates and to use their offi ces for the broader good of the nation.

In 2000 Papua New Guinea introduced the Organic Law on the Integrity of Political Parties

and Candidates. This strengthened the role of parties within the political system relative

to individual politicians, with the aim of stabilising the political system, reversing party

fragmentation, and reducing party-crossing by elected members of parliament. It is too early

to judge its full impact. Observers note increased political stability, but also suggest that

experience to date raises questions about the extent to which legislation can solve deeply

entrenched governance problems (Baker 2005; Gelu 2005). Papua New Guinea has also

introduced a limited preferential voting system, which requires candidates to receive support

from a broader base of voters to be elected than does the ‘fi rst-past-the-post’ system that it

replaced. This sensible reform is yet to be tested in a general election.

Oversight bodies such as the ombudsman and auditor, the judiciary, police and correctional

services are essential elements of the framework of good political governance. The judicial

systems of the Pacifi c island countries have generally functioned freely and fairly, despite

diffi cult circumstances in some cases. Mention should also be made of the Offi ce of the

41 See Huffer (2005) and Huffer and Molisa (1999) for discussions of governance in the Pacifi c context.


Ombudsman in Papua New Guinea, which for some time has been able to maintain a

commendable degree of independence while making its presence felt within government and

society as the public’s watchdog on the behaviour of political leaders. In general, however,

such institutions are in need of substantial strengthening.

Three issues need to be addressed if their performance is to improve. These are their

independence from political infl uence, the adequacy of their resources (staff numbers, skills

and operating budgets) to perform their functions effectively, and the support they obtain

from the public and, in particular, from the media. Some oversight functions can probably be

provided best on a regional basis. The Pacifi c Plan envisages ‘regional support to consolidate

commitments to key institutions such as audit and ombudsman offi ces, leadership codes,

anticorruption institutions and departments of attorneys general’.

Reforms in areas typically tackled by economic governance programs, such as strengthening

public fi nancial management and ensuring merit-based selection of public offi cials, may not

themselves help to improve political governance, but are important to contain the damage

of poor political governance. The problem, of course, is the one already mentioned: without

political support, other governance reforms may not succeed.

Educating parliamentarians, strengthening parliamentary committees and, some would

argue, reserving seats for women are also strategies that can assist in making parliaments

in the Pacifi c island countries more effective. Since the turnover among parliamentarians is

often high the effects of political education interventions are often short lived. The capacity

to undertake such education should be institutionalised by strengthening the secretariats

or offi ces of the clerks of parliament. The Pacifi c Parliamentary Assembly for Population and

Development presents a good-practice model in this regard. The assembly has successfully

mobilised increasing numbers of parliamentarians from Pacifi c countries on population

issues and related concerns such as HIV/AIDS. Interestingly, the assembly is supported by a

secretariat, made up of parliamentary clerks, who, in addition to their offi cial tasks, help to

ensure continuity in a context of rapid political turnover.

Regular inductions of newcomers to parliament and updates on key issues of relevance to

parliament should be offered on an ongoing basis. Leadership education should be part of

this process. Peer pressure among politicians is often found to be useful. There is no better

infl uence than good example, particularly when good behaviour is rewarded. Good politicians

should be supported and encouraged to promote good governance among their colleagues.

integrating modern with traditional community leadership

Virtually every Pacifi c island country has a long tradition of institutionalised community

leadership. Community leadership has effectively managed key local governance tasks such

as the equitable distribution of community resources, the mobilisation of community effort,

the management of land, and the maintenance of local law and order. In some countries,

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such as Papua New Guinea, local institutions were virtually ignored when the new system of

government was constituted after independence. In other countries, such as Fiji and Samoa, a

degree of integration has taken place, which has allowed modern governance systems to build

on and integrate existing traditional systems.

Traditional systems may not score highly from a democratic or gender perspective, but, at least

in some Pacifi c island countries, local communities continue to respect and follow local leaders

and tradition on issues such as land management and local law and order. Traditional systems

are accessible and relatively cost free and, even when they are not formally recognised by

the state, often have a greater legitimacy among local people than do formal structures.

In any case, resource constraints often do not allow national and provincial governments to

effectively reach the vast majority of people living in rural areas and small islands.

There is therefore merit in considering the integration of formal local governance structures

with local traditional leadership systems by, for example, integrating local courts with

traditional village justice systems. However, it must be admitted that, at least in some

countries, traditional systems of governance are in fl ux, and their infl uence is slowly being

eroded by external pressures such as urbanisation. How best to integrate modern and

traditional leadership will therefore vary, both across countries and over time.

strengthening the demand side of reform: partnerships with civil society

Unless the demand for good governance is strengthened, institutional improvements will

always be vulnerable to being rolled back.

In a democracy the ballot box is the ultimate expression of demand. But, when elected

representatives are ineffective, there are other ways in which civil society can make its voice

heard. Civil society organisations and leaders such as academics, business groups, churches,

non-government organisations and trade unions can play a critical role in holding government

accountable at the local and national levels.

Non-government organisations can contribute to good political governance in a number of

very practical ways, such as undertaking periodic sample surveys of service delivery and

recording performance against a select number of service indicators. These ‘report cards’ have

become prevalent in South Asia and South-East Asia, and have proven to be an inexpensive,

but potentially effective tool for making holders of political offi ce more responsible and

accountable. They are often picked up by the media, and can be used to embarrass poorly

performing government agencies into lifting their game and to reward good performers

with good publicity. The Solomon Islands Development Trust has started publishing annual

scorecards of government performance in the press. Transparency International’s 2004

corruption scorecards (national integrity studies) of all the Pacifi c Islands Forum members are

a good example of what can be done.


Civil society does not just mean non-government organisations. Academics can potentially

have a strong infl uence, both on politicians and on the electorate through their research,

publications and speeches. They can also provide education and training for political leaders.

Think tanks can provide analysis that is both independent and infl uential. The media have an

important ‘watch dog’ role to play, giving kudos for good practice and commenting on and

publicly condemning malpractice. The Pacifi c churches have a particularly important role to

play in helping to organise civil society opinion and feedback to politicians.

Business interests can be engaged to infl uence governance more constructively than is

often the case. Some commentators note an ‘antipathy towards open markets’ in the Pacifi c.

Business interests need to be engaged, not to protect closed markets, but as part of a strategy

to ‘create vested interests in open markets’.42 Organised public–private sector discussion

of issues such as business sector regulation, impediments to doing business, infrastructure

requirements, and taxation systems can help to exert the right sort of pressure on government

(see Box 8.1 for an example).

Civil society needs to be strengthened in the Pacifi c. National governments cannot do this

on their own, but they can provide an enabling environment (by allowing tax deductibility for

non-government organisations, for example). Governments can also support partnerships with

civil society. (The memorandum of understanding between the Government of Vanuatu and

the Vanuatu Association of Non-Governmental Organizations is a step in the right direction.)

What civil society needs most to be effective is information, and any government that wants

to improve standards of governance and service delivery would be well advised to put more

information about government performance in the public domain (whether through citizen

charters, or publicising budget allocations). Governments could also create forums in which

feedback from non-state actors can be received and discussed.

Reforms such as these will not usually have an immediate payback. Improving political

governance is a long-term challenge, but perhaps the most important one facing the Pacifi c

island countries between now and 2020.

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42 See Duncan and Gilling (2005, p. 8-18) for these quotes and for further discussion of this point.


The chapter examines the prospects for and challenges facing fi ve important sectors of the

economy: agriculture, fi sheries, forestry, mining and petroleum, and tourism.43 The analysis in

this chapter focuses mainly on sector-specifi c issues, but also highlights any of the crosscutting

growth factors that are especially important for the particular sector under consideration.

Agriculture

[M]ost people [in the Pacifi c] still depend on agriculture (including fi shing) for their

livelihoods. If they are to experience higher incomes, agriculture must be improved.

Brian Hardaker (1988, p. 3)

The larger Pacifi c island countries are agrarian societies, with agriculture – both subsistence

and commercial – being the main source of employment and livelihoods. Agriculture provides

a signifi cant proportion of net export earnings for Fiji, Papua New Guinea, Solomon Islands,

Tonga and Vanuatu. In East Timor, coffee is the main export earner after oil and gas. With

the exception of Nauru, even the smaller countries depend to some extent on agriculture

for subsistence, although much less so because of their limited land and the importance of

their fi shery resources. Some earn cash income from copra. Others earn some income from

diversifi ed agricultural exports, such as papaya in Cook Islands and taro in Niue.

Farming systems in the Pacifi c islands are varied and complex and have proven robust

in the face of adversity. Farmers have responded to changed market conditions. In

Papua New Guinea and Solomon Islands, for instance, currency depreciations have

resulted in sharp increases in the prices of imported food and a large increase in domestic

production for both self-consumption and sale.

chapter nine

Productive sectors

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43 For more on the selection of these fi ve sectors, see Chapter 1.

102

agricultural opportunities and challenges

Taking advantage of the many opportunities that the agricultural sector presents in

many Pacifi c island countries will be important both to lift aggregate growth and to

enhance rural incomes.

One domestic opportunity stems from the rapid rates of urban population growth, which

have created a large and undersupplied market for traditional staples and other food

products, including livestock products. Demand for fresh food, betel nut, kava, fi rewood and

other products is also rising in the rural areas of some countries, as incomes from tree crop

commodities, royalties and remittances increase.

There is also potential to target the tourism market more effectively. At present in the Pacifi c

islands, most food consumed by tourists is imported. Signifi cant tourism sectors offer a

substantial market for locally grown produce, marine products and packaged value-added

products.44 These products in return can contribute to the value of the tourist’s experience.

In terms of export opportunities, the countries of Melanesia remain internationally competitive

in producing traditional tree crops.45 The same applies to East Timor and its more recently

developed coffee industry. In Fiji, after years of disappointment, smallholder horticulture is

now the fastest growing part of its agricultural sector (Box 4.2).

There is scope to expand export markets by more effectively targeting the Asian and Pacifi c

island communities in New Zealand, Australia and the west coast of the United States, which

offer a signifi cant market for various horticultural products, including root crops. Fiji and the

Polynesian countries in particular are in a position to take advantage of these opportunities.

The rest of Melanesia and East Timor are currently largely excluded from horticultural markets

due to limited airfreight capacity, unfavourable fruit fl y status, and the absence of their own

people living in target markets.

Indigenous tree nuts have the potential to become for Melanesia what the Brazil nut is for the

Amazon or the macadamia nut is for Hawaii. The nangai or ngali nut46 is edible, and its oil is

used in cosmetics and pharmaceuticals. An AusAID-funded project in Vanuatu, which supports

the packaging and marketing of the nut, has demonstrated that limited value adding can

produce prices as high as A$17 000 per tonne. It is estimated that only 5 per cent of all nangai

nuts grown in Vanuatu are harvested every year, so the potential value of production is much

higher. Solomon Islands has a thriving domestic market for both natural and processed nangai

Pacifi c 2020 • chapter nine productive sectors

44 Each year, around 500 000 tourists visit Fiji and stay an average of eight days. If the average tourist consumes three papaya, two mangoes and one pineapple during a stay, the tourist market amounts to some 750 tonnes of papaya, 400 tonnes of mango and 400 tonnes of pineapple. These volumes are substantially larger than those expected to be exported, at least in the medium term.

45 As demonstrated by the remarkable recovery of Solomon Islands’ copra and cocoa industries since 2003. With the

restoration of peace in Bougainville, a similar recovery in copra and cocoa production has occurred.

46 The scientifi c name for this nut is Canarium.


and has started to export nangai products. Many other promising species, though identifi ed,

require assistance and research in developing species selection, propagation and marketing.47

Unfortunately, all of these opportunities notwithstanding, the agricultural sectors of the

Pacifi c island countries have never developed to anywhere near their full potential. There are

success stories, such as palm oil in Papua New Guinea (see Box 9.1). But many of them remain

extremely vulnerable. Fiji’s sugar industry has done well, but is now in crisis with the loss of

preferential access to the European Union and the non-renewal of many land leases to tenant

agricu

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47 Other indigenous nuts with high export potential include cut-nut (Barringtonia spp.), sea almond and okari (Terminalia spp.). The Hawaiian macadamia nut industry depended on the injection of substantial equity and risk capital. No such capital has been available for new agribusiness ventures in the Pacifi c islands. (Note that macadamia nuts are indigenous to Australia and were introduced to Hawaii in the 1880s. Hawaii was the fi rst to produce the nut in commercially exportable quantities.)

box 9.1 • the palm oil industry in papua new guinea

The PNG palm oil industry shows how innovative, market-driven industries can thrive,

even in the diffi cult operating environments of Pacifi c island countries. From 1980 to 2000,

PNG palm oil production grew by 10 per cent a year. It now generates more export revenue

for Papua New Guinea (on average, approximately A$200 million a year) than any other

rural product, including coffee and forest products. This has been achieved despite the

constraints of poor governance, weak infrastructure and customary land tenure. (No doubt,

without these constraints, much faster growth could have been achieved.)

Several factors have underpinned its success.

• The agro-climatic conditions of the main plantation areas of Papua New Guinea confer

a natural comparative advantage in palm oil production, because potential yields are

higher than those of some of its competitors.

• Although the industry was initiated by the Australian administration in the 1970s, with

the support of the World Bank, it has since been managed, operated and fi nanced by the

private sector.

• The industry is based on ‘nucleus estates’ that provide opportunities for smallholder

production around large company-run plantations. The company plantations provide

inputs and fi nancing, and arrange for the purchase of the smallholders’ produce.

• The government mandated but privately funded Oil Palm Industry Corporation and Oil

Palm Research Association provide effective research and extension services.

• The industry has also pioneered innovative harvesting arrangements involving local

women that have increased the productivity of the oil palm blocks, put more revenue in

the hands of women, and reduced social tensions within the local population.

Source: AusAID.

104

farmers. Taro was the lead export product in Samoa until disease decimated the industry.

Tonga’s economy is highly dependent on squash, which is grown in a largely unsustainable

way and sold to a seasonal niche market in Japan.

Overall, the agricultural sectors in the Pacifi c island countries have performed badly. The

data are of poor quality, but suggest low though variable agricultural growth across the

region (Table 9.1). Traditional farming systems are under increasing pressure, particularly in

Melanesia and East Timor, where population growth rates remain high and available land is

limited. Further limiting factors to increased subsistence and commercial crop production

include high transportation costs, restrictions on access to overseas markets, a deterioration

in the natural resource base, particularly soil fertility, and pest and disease problems.

table 9.1 • average annual growth in agriculture in pacifi c island countriesfrom 1995 to 2003

Growth rate

%


Fiji -0.7a

Papua New Guinea 0.1a

Vanuatu 2.0

East Timor -1.3b

Polynesia

Cook Islands 8.3

Samoa -0.5c

Tonga 2.0

Tuvalu -1.6a

Micronesia

Kiribati 8.8

Marshall Islands, Rep. of -8.5d

Nauru -4.2a

Palau -2.3

a 1995–2002. b 1998–2003. c 1995–2004. d 1995–2001.

Source: Asian Development Bank (2005d).

What needs to be done to improve agricultural performance? Action is of course needed

on the crosscutting issues identifi ed in the previous chapter. Infrastructure emerged as a

particularly important constraint for agriculture, but the land and credit markets were also

emphasised. Three sector-specifi c actions also emerged from the Pacifi c 2020 process as

essential for lifting agricultural productivity and accelerating agricultural growth: improving

farmer access to technology and information; removing distortions against agriculture;

and facilitating market access.



improving farmer access to technology and market information

Limited access to appropriate technology and market information is constraining the ability

of producers and marketers to make informed decisions on how to increase effi ciency,

improve the quality of produce, and ensure their products meet consumer demand. Farmers

need advice on how to control pests and disease, maintain soil fertility, handle produce after

harvest, use food technology and access realistic market information.

The research needs of the signifi cant export commodity industries in the Pacifi c island

countries (such as sugar and palm oil) are relatively well catered for. However, a substantial

increase in public funding for research and development institutions may be warranted, since

only the larger tree crop export industries in Papua New Guinea and the sugar industry in Fiji

have the scale and fund-raising capacity to be self-sustaining in fi nancing research.

Research to enhance household self-suffi ciency is a priority and, as a public good, will be

undertaken only if it is funded by government or donor. For those countries unable to operate

and fund their own research institutions, there are opportunities to establish twinning

relationships and links with neighbouring countries, such as Papua New Guinea and Vanuatu,

as well as with donors and international research institutions.

The extension and outreach capability of commodity industries has not matched their research

capability. The departments of agriculture in the Pacifi c island countries operate diffuse and

often ineffective extension services with weak links to research. The future for agriculture

in these countries lies with providing greater scope for industry-led research and extension,

planned and undertaken in concert with governments and donor partners.

In some countries, alternative industry-led models are being adopted with encouraging

results, although sustainable funding remains a challenge. In Papua New Guinea, for example,

extension services are being provided by the privately funded Oil Palm Industry Corporation

(Box 9.1). This model could be applicable to the development of other large industries

requiring central processing or handling, such as a future major Melanesian indigenous nut

export industry or a large Fijian horticultural export industry requiring quarantine treatment.

Other more diffuse agricultural export industries are devising innovative solutions based

on contracting out extension services. For example, the Papua New Guinea Coffee Industry

Corporation is now contracting out grower outreach services. In Vanuatu, the largest spice

exporter uses the Farmer Support Association to provide extension services to its smallholder

suppliers. In Papua New Guinea a vanilla exporter has forged a similarly successful partnership

with the non-government organisation Didi Meri. Non-government organisations and

farmer networks are also active in Solomon Islands providing quality seeds and promoting

collaboration. While no one model is applicable to all circumstances, these examples provide

guidance to industry policymakers on ways to proceed.

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It is in the area of domestically marketed and subsistence food products that research and

extension capability is weakest. Farmers need improved planting material and the capacity to

manage the pest, disease and soil fertility problems associated with the intensifi cation of land

use. The Samoa experience has shown the potential for new fruit species (eg rambutan) and

varieties (eg papaya). In some countries there is scope to strengthen existing departments

responsible for agriculture to provide these services. In others, however, there is probably

little point in trying to rehabilitate the traditional extension functions of these departments.

Alternative models need to be pursued, with greater reliance on the private sector. Some

examples of actions that can be taken follow.

• Financial and technical support can be provided to smaller non-government initiatives to

generate and disseminate information. An example is the village extension worker network

established by Papua New Guinea’s fresh produce industry (Box 9.2).

• Ensuring that there is competition for the public funds allocated for research and extension

among potential implementing agencies can promote effi ciency and help to ensure a focus

on industry needs rather than the interests of the existing research and extension agencies.

• Regional bodies with agricultural programs, such as the Secretariat of the Pacifi c

Community, can be used to help get technology and market information directly to

agricultural communities.


box 9.2 • finding new models for delivering extension services: papua new guinea’s

village extension worker network

In Papua New Guinea, extension services for the fresh produce industry have been provided

through the Fresh Produce Development Agency, created under the Companies Act, with

government and donor funding. The agency has had reasonable success in supplying

information to the fresh produce industry and is credited with facilitating the development

of the potato industry (McGregor, Lutulele and Wapi 2004). Perhaps its most important

achievement has been the establishment of a low-cost, community extension system based

on a village extension worker network. The network model could be amenable to the newly

emerging PNG spice industry, where lack of information on quality requirements is a major

constraint to development. The concept of village extension workers has wide applicability

among the Pacifi c island countries.

Source: Pacifi c 2020 agriculture roundtable.

removing distortions against agriculture

As with other sectors examined as part of the Pacifi c 2020 process, agricultural development

depends heavily on an enabling environment. Agriculture is often disadvantaged by exchange

rate and trade policies. Microeconomic policy is also important. For example, farmers should

have a choice in who they sell to. The importance of policy for sectoral growth is shown by the

varied performance of coffee and cocoa across the Pacifi c (Box 9.3).


box 9.3 • the impact of competition policy on sectoral outcomes: the example of

coffee and cocoa

The coffee and cocoa boards in Papua New Guinea have never had a monopoly on

marketing. The boards have instead focused on improving quality standards, stabilising

prices, and funding and directing research. The resulting competitive marketing structure

has served growers well and remains largely intact today, despite the declining effi ciency

and performance of the regulatory institutions.

This contrasts with Fiji, Samoa and Vanuatu, all of which opted for parastatal monopolies

to market cocoa. The Fiji and Samoa export industries now barely exist and the Vanuatu

industry is performing well below its potential.

Source: Pacifi c 2020 agriculture roundtable.

Policy formulation would benefi t from greater engagement with industry and other

stakeholders. In Samoa, for instance, collaborative mechanisms established for consultation

with industry have led to the joint formulation of policies and supporting programs for

rehabilitating the coconut and cocoa industries.

To promote microeconomic reform in agriculture, consideration could be given to establishing

a regional, independent consumer and competition watchdog, an advisory body that could set

benchmarks and provide neutrality. There would also be advantages in establishing a small

regional unit (perhaps within the Forum Secretariat) to provide governments with independent

policy analysis and advice and to train national staff in policy analysis. Although its primary

purpose would be to advise national governments, it would be highly desirable if industries

could also obtain independent policy analysis and advice from this body.48

facilitating market access

Effective systems to ensure that produce meets quality and safety standards – sanitary and

phytosanitary (SPS) standards, for example – are a weak link in the export marketing chain for

Pacifi c island countries. Exporting countries are faced with the dual challenge of ensuring that

their products meet the quarantine safety standards of their export markets, while ensuring

that their own quarantine systems are adequate to enable imports of improved varieties and

prevent the entry of pests. There are too many examples of growers and exporters suffering

signifi cant losses as a result of failures in these systems.

48 For example, the Papua New Guinea Government is currently proposing to impose a duty on exports of cocoa beans as an incentive for the establishment of a local processing plant. The Vanuatu Government is also fl irting with the possibility of reintroducing monopoly export rights for copra. The affected national industry groups may see it as useful to request such a regional policy advisory body to provide an independent assessment of the implications of these moves.

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To prosper, the agricultural sector depends on the timely development of protocol for exports,

effi cient pest risk assessments for imported plant and animal material, and an acceptable level

of quarantine security. There has been insuffi cient consultation with industry to determine

market access priorities, and with quarantine offi cials from importing countries to determine

appropriate standards. Although some countries have benefi ted from the activities of the

Secretariat of the Pacifi c Community and from the aid-funded projects on institutional

strengthening, and other countries have moved to corporatise quarantine functions, more than

institutional reorganisation is required.

With the onus now on scientifi c justifi cation for SPS measures, a successful SPS service

must have the necessary technical and managerial capabilities. However, many Pacifi c island

countries will not be able to develop the critical mass of expertise required to provide such

functions. This suggests they need to take a regional approach to SPS services to realise

economies of scale, as envisaged by the Pacifi c Plan’s Regional Trade Facilitation Programme.

More work is also needed to resolve non-SPS market access barriers, such as securing

import approval for new or specialised products. Noni, kava and various indigenous nuts

have considerable export potential, but only if market access issues can be resolved. Again,

a regional approach might be the most effective.

Fisheries

Most of the Pacifi c island countries control considerable areas of ocean, with ocean area

exceeding landmass by an average of 300 to 1. Oceanic fi shing (mainly tuna) is important in

different contexts for employment, export earnings and government revenue. The average

annual tuna harvest from the Pacifi c islands region is about 1 million tonnes with a landed

value close to US$1.7 billion – about one-third of all landed tuna worldwide (Petersen 2001).

The importance of fi shing for Pacifi c island countries is indicated in Table 9.2. Several of the

countries with the greatest fi sheries potential in their waters are those with the lowest income

per person, such as Kiribati, Tuvalu and Papua New Guinea (Table 2.1). Some of the Pacifi c

microstates have few economic opportunities other than fi shing open to them. Kiribati, for

example, gets about 60 per cent of its government revenue from fi shing.

Oceanic fi sheries are approaching sustainable fi shing limits for some species after decades

of steady growth in catches. As 2020 approaches, more and more fi shery activities will

come up against sustainable resources limits due to overfi shing, population pressures and

environmental degradation.

In the Pacifi c countries, where most people live in coastal areas, coastal fi sheries are important

to food security and community living standards. The value of coastal catches for food was

estimated at around US$180 million in the mid-1990s, and the value of coastal fi sheries for

export products at US$50–80 million. While there are opportunities to increase the values of



yields from some coastal fi sheries, the greater challenge is to maintain yields in the face of

increasing local demand and degradation of reef and lagoon systems.

Currently, aquaculture contributes relatively little to the economies of Pacifi c island countries,

except in the case of black pearls. If aquaculture is to expand – and there are some good

prospects49 – improved national frameworks for sustainable aquaculture and regional

cooperation in biosecurity and quarantine will be important. Though this section focuses

mainly on oceanic and coastal fi sheries, many of the specifi c policy actions recommended

apply equally to aquaculture.

table 9.2 • the importance of fi shing to pacifi c island countries, 1999

Fishing contribution to GDP

Fishery exports as a percentage of exports

Access fees as a percentage of GDP

% % %

Melanesia

Fiji 2.3 6.0 0.01

Papua New Guinea 0.6 1.8 0.2

Solomon Islands 12.8 20.0a 0.1

Vanuatu 1.0 <1.0 0.1

Polynesia

Cook Islands 2.8 81.9 0.2

Niue 1.7 0 2.0

Samoa 8.0 61.5 0.1

Tonga 7.1 23.8 0.1

Tuvalu 6.8b 1.2b 42.6

Micronesia

Kiribati 11.8 16.9 42.8

Marshall Islands, Rep. of 7.4 6.2 5.1

Micronesia, Fed. States of 4.7b 94.7a 6.7

Nauru 2.1 0 6.6

Palau 2.8 73.0c 0.7

a In 1997. b In 1998. c In 1996.

Note: Different methodologies were used in calculating the data and may include subsistence fi shing for some countries. Access fees are fees paid by foreign vessels.

Source: Asian Development Bank (2002c).

fi sheries

49 Aquaculture could be expanded through, for example, wider adoption of methods for farming pearls (based on the success of Cook Islands) and seaweed (based on the success of Kiribati), increased subsistence aquaculture, and farming marine organisms for specialist markets such as aquariums and for building overexploited wild stocks.

110

As in other sectors, misgovernance exacts a heavy toll on fi sheries. Policy instability, high

taxation, slow immigration processes, investment insecurity, weak public administration,

government interference and corruption are currently constraining the development of both

oceanic and coastal fi sheries. The lack of infrastructure is also a serious concern. Models

based on direct public sector involvement in the sector – through ownership, for example

– have failed. But there are private-sector-led models to draw on from among the Pacifi c

island countries. For several years Samoa, with its tiny exclusive economic zone and valuable

domestic fi shing industry, has provided a good example of real benefi ts fl owing to a rewarding

policy environment. Progress is also being made, despite some failed initiatives, within

countries such as Cook Islands, Fiji, the Republic of the Marshall Islands, Papua New Guinea,

Tonga and most recently Niue, not only in the tuna fi shery, but also in some inshore fi sheries.

Much can be done to enhance the development contribution of the fi sheries sector. The Pacifi c

2020 process revealed fi ve sectoral imperatives, which are now explored in turn: increasing

the benefi ts from access to fi shery resources; improving sector transparency; strengthening

private sector organisations; developing fi sheries management and technical skills; and

maintaining the health of coastal fi sheries through greater community involvement.

increasing the benefi ts from access to fi shery resources – value not volume

Currently, most of the catch in the waters of the Pacifi c island countries is made by distant-

water foreign vessels fi shing under access licences and landing their catches in foreign ports

with little or no direct contact with island communities. Access fees return US$60–70 million

to the Pacifi c island countries each year. Over 95 per cent of this is earned by six countries (in

descending order of importance, Kiribati, Federated States of Micronesia, Tuvalu, Papua New

Guinea, Republic of the Marshall Islands and Nauru). Several countries have also encouraged

development of a domestic fi sheries business by using, for example, domestic processing

requirements attached to access licences. The current value of catches by tuna vessels based

in Pacifi c island countries is estimated at around US$300 million a year and is growing, with

added value from processing plants in 10 of the countries.

Some will argue that countries should take the benefi ts from granting access to their

fi shery resources through the most effi cient means (namely, cash payments) and leave

the development of the domestic fi sheries sector entirely to the market. Others defend a

preference for employment opportunities over cash grants because of the urgent need to

create jobs, the low levels of effi ciency in the public sector, and the volatile nature of the

access rents. Whatever one’s view on this debate50 (and it is clear that, if the latter route is

chosen, it has to be done in a way that keeps the public sector out of commercial activities),

different countries are likely to continue to take different paths.


50 See Asian Development Bank (1999a) for a good discussion of this issue.


Those countries that have big exclusive economic zones supporting large offshore stocks

and that face severe constraints to being involved directly in harvesting those resources will

continue to rely on arrangements to license foreign vessels, including vessels from other

Pacifi c island countries. The countries that have better infrastructure and market access, more

competitive economies and stronger private sectors are likely to continue to pursue domestic

fi shery development.51

The recent establishment of the Western and Central Pacifi c Fisheries Commission (WCPFC) has

greatly changed the outlook for managing and developing tuna resources, and for relations

between Pacifi c island countries and fi shing states. The timing seems favourable for some

bold, innovative approaches to increasing the benefi ts from access to fi shery resources (see

Box 9.4 on the WCPFC and other regional fi shing bodies). There is an expectation that limits

for conservation will be applied. These will make access to fi shery resources more scarce and

therefore more valuable. There is also an expectation that control over access to resources by

Pacifi c island countries should be strengthened rather than weakened by the operation of the

WCPFC, particularly if it leads to substantial allocations of long-term fi shing rights to these

countries and to limits to fi shing in the high seas.

There will be opportunities for Pacifi c island countries to use the new situation to grant longer

term, more secure, more valuable access rights, either to earn higher access fees or to leverage

the domestic development of processing and marketing, or vessel servicing. They can perhaps

increase their returns further by collaborating more closely to harmonise fees or provide

access to a wider area for a single licence, to process and market produce from the region to

world markets, or to tie access to trade opportunities. A further opportunity for increasing

benefi ts lies in getting away from the current practice of licensing whole foreign fl eets under

access agreements and instead dealing with individual boat-owning companies, making them

compete against each other by using, for example, tendering and auctioning processes.

New alliances will be a feature of strategies to increase the benefi ts from access, both with

foreign fl eets and among the Pacifi c island countries themselves. Some Pacifi c island countries

have already taken advantage of opportunities to create alliances relating to access with

others in the group. For a long time Fiji has promoted mutually benefi cial arrangements with

neighbouring states based around processing operations in Fiji and use of its ports and

transport services to export markets. More recently, Cook Islands, Niue, Samoa and Vanuatu

have been involved in joint fi shing and processing activities, and recent fl uctuations in the

longline fi shery in that area underscore the need for domestic vessels to have access to

wider areas of fi shing grounds to survive. In the tropical subregion, the Federated States of

Micronesia, Kiribati, Papua New Guinea and the Republic of the Marshall Islands have been

able to secure development gains from the FSM Arrangement that provides mutual access for

purse seine vessels52 to each other’s waters.

51 The Pacifi c Plan commits countries to in-principle agreement to ‘encouragement of effective fi sheries development, including value-adding activities’.

52 Purse seining is a commercial fi shing method used to capture schooling surface fi sh whereby an area of water is surrounded by a net that is then ‘pursed’ at the base to enclose that area from below. It is commonly used in tuna fi shing.

fi sheries

112 Pacifi c 2020 • chapter nine productive sectors

box 9.4 • regional fishery institutions

Fishing of the highly migratory tuna species found in the Pacifi c is now managed by the

recently established Western and Central Pacifi c Fisheries Commission, which has its

headquarters in the Federated States of Micronesia. The WCPFC members include not only

the Pacifi c island countries, but also the larger Pacifi c nations of Australia, Canada, China,

Japan, Korea, New Zealand and the Philippines. The European Union is also a member. The

United States has signed the convention, but not yet ratifi ed it.

The ocean coverage of the WCPFC accounts for more than 40 per cent of the world’s

tuna, worth more than US$2 billion a year. The objective of the WCPFC is the effective

management, long-term conservation and sustainable use of the highly migratory fi sh

stocks in the western and central Pacifi c Ocean.

The WCPFC has the authority to determine the total allowable catch or level of fi shing

effort and can develop allocation criteria accordingly. (This has not yet been done, but

should remain a priority.) It will decide on management of the high seas areas outside the

200-nautical mile exclusive economic zones where the jurisdiction of national governments’

ends. Members of the WCPFC will have a responsibility to ensure that the national

management of tuna species within their exclusive economic zones is compatible with the

overall management objectives of the commission.

The longer established Forum Fisheries Agency and the Secretariat of the Pacifi c Community

assist their Pacifi c member countries to manage their fi sheries. Further, within the Pacifi c

there are a number of regional and subregional treaties, agreements and arrangements to

coordinate and harmonise the management of regional fi sheries.

In general, the Forum Fisheries Agency and the Secretariat of the Pacifi c Community are

perceived to be effective bodies with respect to the fi sheries sector. As the Secretary

General of the Forum Secretariat put it recently, ‘fi sheries is one sector where regional

cooperation has worked successfully for us’.

Source: Australian Department of Agriculture, Forestry and Fisheries.

improving transparency in the fi sheries sector

Recent cases of corruption and continuing expressions of concern from representatives of the

fi shing industry about the integrity of decisions relating to the granting of licences point to the

need for greater transparency in fi sheries decision making. These concerns apply in particular

to decisions about who should and should not be allocated licences, to the conditions

attached to licences, and to decisions on fee levels, especially for foreign vessels.


There is a need to enhance transparency through legal and administrative reforms to codify and

formalise licensing processes. Responsibilities for licensing and setting fees and other conditions

should be broadened to include agencies such as fi nance ministries and legal authorities so

that the responsibilities do not lie with a single government minister or senior offi cial. Licensing

details should also be publicly disclosed so that decisions on to whom licences are granted and

on the terms and conditions of licences can be subject to public scrutiny.

There is also too much secrecy at the regional level. Pacifi c countries would be better served by

sharing information, not concealing it from each other, so that all of them are better informed

in dealing with foreign fi shing partners, and there can be more open dialogue about access

arrangements as a basis for more cooperative and collective action. Regional organisations,

particularly the Forum Fisheries Agency, are the obvious focus for an effort to improve

transparency through information sharing between Pacifi c countries. This could be a priority

under the Pacifi c Plan initiative to harmonise fi sheries legislation and access frameworks.

strengthening institutional arrangements and stakeholder consultationin the private sector

In most Pacifi c island countries, fi sheries management processes have traditionally been

concentrated within the fi shery administrations. They have generally not provided structured

dialogue and consultation with other stakeholders, including the private sector and even other

government agencies. Over the past decade, as domestic fi shery businesses have developed,

there have been greater efforts to engage the private sector by establishing consultative fi shery

management processes, but in most countries these are still inadequate and, in some cases,

virtually non-existent. A recent initiative at the regional level was the establishment in 2005 of

the Pacifi c Islands Tuna Industry Association to represent national tuna industry associations.

Strengthening institutional arrangements among private sector interests, and improving

arrangements for dialogue with government will help to improve the national management of

fi sheries and increase the effectiveness of national delegations in regional and international

forums, particularly the WCPFC. For example, enhanced organisation by the private sector itself

with government support has enabled vigorous participation of PNG private interests in the

WCPFC process, benefi ting not only Papua New Guinea but the collective Pacifi c island stance

in that process.

Improvements in this direction require a range of commitments from fi shery business interests,

governments, donors, and regional and international agencies. The most important of these is

the commitment from fi shery businesses themselves of the necessary time, energy and cash to

form and support appropriate institutional arrangements. But government and donor support

is also important.

fi sheries

114

promoting mentoring and partnerships to develop entrepreneurs andbusiness management skills

Weaknesses in private sector capacity are a cross-sectoral constraint on growth in the

Pacifi c island countries. A business–government partnership to strengthen entrepreneurial

capacity and build business management and technical skills would help empower citizens to

participate more fully and effectively in fi shery businesses. There should be a particular focus

on mentoring or partnership approaches that aim to develop entrepreneurs and build fi sheries

management and technical skills.

Strengthening government departments will also be important. The ability of Pacifi c island

countries to generate data about coastal fi shery resources will be crucial. Departments

responsible for fi sheries also need to strengthen their abilities to engage with local

communities and implement co-management plans. Further capacity development is required

to ensure Pacifi c island countries engage effectively in the opportunities that the WCPFC

presents and to ensure different policy options and their implications are appreciated. A study

by the Secretariat of the Pacifi c Community (2004) found that no member country had the

capacity to fully comply with the expected data requirements of the WCPFC.

improving coastal fi sheries management through community involvement

Improvements in coastal fi sheries management should aim to maintain the contribution of

inshore fi sheries to food and nutrition, while carefully exploiting opportunities to increase

incomes from domestic or specialist export market opportunities.

There are opportunities for addressing coastal fi sheries management problems at three

levels – local, national and regional. It is now accepted that real gains can be made only

from improving management and increasing capacities at a local level. This would involve

preserving and strengthening traditional management systems where possible, and creating or

strengthening alternative community-based management systems elsewhere. For community-

based fi sheries management to be successful, a comprehensive national strategy is required

because there will usually be a need to change national laws, policies and institutions.

Across the region, there are recognised successes in improving coastal fi sheries management.

Fiji’s legal recognition of community fi shing rights is probably the most comprehensive in

the world, and Samoa’s Community Fisheries Programme has become a global model (see

Box 9.5). Although there is no single solution that fi ts all countries, much can be gained from

sharing experiences and pooling resources, particularly in assessing the status and prospects

of reef fi sheries, applying legal structures that devolve fi sheries management authority, and

developing strategies for governments to support traditional resource management and build

community capacities for effective management of marine resources. There is particular value



in cooperation to ensure that countries and communities can respond quickly to what are often

fast-developing new inshore fi shery opportunities such as exporting species for aquariums

and live reef fi sh for food – cooperation both in terms of applying appropriate conservation

management strategies and ensuring that resource owners secure fair value for products.

forestry

box 9.5 • samoa fisheries project

The goal of the AusAID-supported Samoa Fisheries Project was to make a signifi cant

contribution to the sustainability of Samoa’s inshore and offshore marine resources, and to

the continuing development of the nation’s village-based and commercial fi sheries.

The inshore part of the project addressed sustainability by increasing the involvement

of communities in managing their adjacent fi sheries and by increasing the ability of

government fi sheries staff to encourage and assess participating communities.

An extension service was developed to promote the community-based fi sheries

management program in village-based fi sheries. When the project ended, the program

included 64 villages with Village Fisheries Management Plans. Of these, 52 have

community-owned fi sh reserves (marine protected areas). A separate extension service,

established for the commercial fi shery, provided support for the Commercial Fisheries

Management Advisory Committee and addressed issues relating to safety at sea and

seafood handling.

The economic benefi ts from the project include increased productivity in both the commercial

and subsistence fi sheries. Benefi ts from the community-based fi sheries management

program include an average increase of 56 per cent in fi sh catches in communities with their

own fi sheries management plans compared with villages not in the program.

Source: Pacifi c 2020 fi sheries roundtable.

Forestry

Governance has been particularly poor in the area of forestry with the side effect of

promoting corrupt practices and undermining environmental sustainability.

Former Prime Minister of Papua New Guinea, Sir Mekere Morauta (1999)

Forestry raises as many questions about the management of growth as it does about its

acceleration. Natural forestry and plantation forestry present governments with very different

challenges and opportunities, and are treated separately in the discussion that follows.


addressing the natural forestry crisis

Many Pacifi c island countries have a high degree of forest cover (Table 9.3). They hold some of

the world’s last remaining areas of intact lowland tropical rainforest with globally signifi cant

levels of biodiversity. Forest resources are important for the subsistence economies of some

of the smaller countries (for example, Federated States of Micronesia, East Timor, Niue and

Tonga). Four Pacifi c island countries – Papua New Guinea, Solomon Islands, Fiji and Vanuatu

– support forest industries that are very important to their economies, particularly as a source

of foreign exchange.53

table 9.3 • forest cover in pacifi c island countries

Country Land area Forest area

(estimated 2005)

Forest area 2005 as a percentage of

land area

’000 ha ’000 ha %


Fiji 1 827 1 000 54.7

Papua New Guinea 45 284 29 437 65.0

Solomon Islands 2 799 2 172 77.6

Vanuatu 1 219 440 36.1

East Timor 1 487 798 53.7

Polynesia

Cook Islands 23 16 69.5

Samoa 283 171 60.4

Tonga 75 4 5.3

Tuvalu 3 1 33.3

Micronesia

Kiribati 73 2 4.1

Marshall Islands, Rep. of 18 … …

Micronesia, Fed. States of 70 63 90.6

Nauru 2 0 0

Palau 46 40 87.6

Note: Table shows all forested areas, including areas not commercially exploitable. Data are for 2005 or, if unavailable, an earlier year. … Not available.

Source: Food and Agriculture Organization (2006).

53 Vanuatu earns this exchange from processed timber exports and taxes, and gains an economic advantage through the value of domestically sourced inputs and employment. Fiji mirrors Vanuatu to a lesser extent. In contrast, logging in Papua New Guinea and Solomon Islands currently has limited links to the rest of the economy.


Governments in the Pacifi c island countries tend to start from the premise that natural forests

are renewable resources. But in Solomon Islands and Papua New Guinea logging continues

at two to three times the ‘sustainable yield’ level, and the major natural, accessible forests in

both countries are likely to be logged out by 2020 or earlier.

The output from natural forests is thus bound to decline in the coming years. As Figure 9.1

illustrates for Solomon Islands, by 2015 natural forest production could have come to an end

and total log production could be at a third of the current level. This will have large, economy-

wide implications. In Solomon Islands, exports of whole logs provided 65 per cent of total

export earnings in 2004. The only question is whether the inevitable decline will be gradual

and managed because of a shift to more sustainable extraction, or whether natural logging will

come to an abrupt end because of the disappearance of accessible forests.

fi gure 9.1 • projected log production in solomon islands to 2050

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

2004 2009 2014 2019 2024 2029 2034 2039 2044 2049

Volu

me

(m3 )

Village plantations

Industrial plantations

Logged natural forests

Unlogged natural forests

Note: The original version of this fi gure (from the data source below) is based on a projection of annual natural forest logging of 644 800 m3 (the average output for the years 1994–2003). In 2005 the volume cut was 1 118 000 m3. This much higher number has been used to rework the projections for natural forest logging. Other projections are as per the original version.

Data sources: AusAID Solomon Islands Forestry Management Project (2003); own calculations.

While some infrastructure and other services are provided to communities in return for

logging rights, much of what is provided is substandard. Even employment opportunities

for nationals are limited.54 And governments are not gaining as much as they could from

forestry

54 There is little domestic processing. While many countries have policies committing to the promotion of downstream processing (particularly sawn wood), implementation has been less successful. ‘Walk about’ sawmills can be seen as a community resource for value-adding processing, but a number of issues need to be resolved. These operations are not necessarily environmentally benign, the production can be extremely wasteful, the distribution of income is not necessarily equitable, and fi nding and accessing markets in which to trade the resulting products is diffi cult without considerable assistance.

118

logging. In Solomon Islands, it is estimated that half the logs exported are exempt from

duties. Furthermore, the logging is reducing other opportunities to use the forests. For

example, they can be used for non-timber forest production (see the discussion on forest

nuts in the section on agriculture) and for environmental services, payments for which are

starting to be seen internationally.

To put forestry on a sustainable footing will require a fundamental turnaround in sectoral

governance arrangements, including better implementation of existing policy and legal

requirements. Vanuatu and Fiji may be showing the way forward (Box 9.6).55 Yet prospects

for shifting to a more sustainable and economically rational logging regime are poor in

Solomon Islands and Papua New Guinea. After all, the forestry crisis is not a new one. In

Papua New Guinea the forestry cut was estimated to be at three times the sustainable level as

far back as 1993 (Nadarajah 1993). Major attempts to reform that country’s forestry sector have

failed. In Solomon Islands the 2002 Forests Bill still awaits approval. Powerful vested interests

are involved, as are large failings of governance.


box 9.6 • vanuatu and fiji: moving towards sustainable natural forestry

Vanuatu’s National Forest Policy aims to ensure that its forests are managed on a

sustainable basis to maximise social and economic benefi ts for current and future

generations. It was prepared over two years and involved widespread consultations. The

fi nal document was prepared following a series of workshops on public forest policy held

around Vanuatu in April 1997 and was formally endorsed by the Council of Ministers in

November 1998. Unlike in several other countries, the implementation of the policy appears

to have been effective.

The Fiji Forestry Department, with the support of the Secretariat of the Pacifi c Community

and German donor support, has been working with landowners in the Drawa area, on the

south-eastern tip of Vanua Levu (Fiji’s second largest island), to develop a commercially viable

sustainable management regime for their forests. The ultimate goal is to improve livelihoods

and create maximum long-term economic benefi ts through community-based management,

processing and value adding. Based on extensive consultations with the local communities

and relevant agencies (government and non-government), a comprehensive forest

management plan and a holistic land use plan for non-timber activities have been developed,

and a wide range of technical and business training courses have built up the necessary

capacity to implement them. The fi rst logs were sold profi tably in 2005 and a portion of the

profi ts will go into community development projects in the various villages. It is anticipated

that the positive experiences gained from the Drawa model areas will help to institutionalise

viable community-based forest management regimes for all native forests in Fiji.

Sources: Pacifi c 2020 forestry roundtable; Secretariat of the Pacifi c Community.

55 In addition to the progress highlighted in Box 9.6, two community forest projects in the Pacifi c, the Nakavu Forest Project in Fiji and the Fasak Eco-Forestry Project in Vanuatu, were listed as examples in the Durst et al. (2005) publication highlighting cases of exemplary forest management in Asia and the Pacifi c.


forestry

developing new plantations

Realistically, growth opportunities in forestry in the Pacifi c island countries can come only

from new plantations.56 Tree growing in the tropics is highly labour intensive, requires few

tools and very little infrastructure, and provides opportunities for rural employment. It does,

however, require a long-term commitment.

While there is obvious potential in the land-abundant Pacifi c countries for large plantations,

land tenure constraints mean that the greatest potential for plantations may be at the

community or household level. (The large-scale plantations in Solomon Islands are on

alienated land.) Box 9.7 provides an example from Solomon Islands of a community forestry

project that has assisted communities to grow high-value trees, which are planted and owned

by individual families.

box 9.7 • community plantations in solomon islands

The community forestry component of the AusAID-supported Solomon Islands Forestry

Management Project aims to enhance rural livelihoods through better use of forest

resources. It has been one of the most successful aspects of the project to date.

The community forestry component has assisted communities to grow high-value

(predominantly teak) trees, which are planted and owned by individual families. It

is underpinned by a comprehensive campaign to educate people about new market

opportunities for forestry and how communities can gain better outcomes, both fi nancially

and socially, from improved logging practices. There is strong demand to develop forestry

plantations, which have the potential to signifi cantly and permanently contribute to rural

and national income.

Source: Pacifi c 2020 forestry roundtable.

New plantations would need to focus on a few species in which the Pacifi c has some

comparative advantage in meeting the demands of specialty markets unlikely to be supplied

by other countries producing plantation woods. Likely candidates are teak and mahogany

because the supply of high-quality furniture timbers from natural forests is in decline, and

export markets are increasingly prepared to pay a premium for quality timber from sustainably

managed sources.

Other possibilities include specialty woods such as sandalwood and sandalwood hybrids in

Vanuatu, Fiji, Cook Islands, Tonga and East Timor (2 hectares of sandalwood aged 15–20 years

is currently worth about US$400 000). Poumuli in Samoa can be grown within a 7–9 year

rotation and it produces durable poles with good market potential. To help overcome cash fl ow

56 See Curtin (2005) on the potential of plantation forestry in Papua New Guinea.


problems associated with the long gestation of forest products, the plantation trees could be

interplanted with cash crops.

The successful development of plantation forestry will require research support, both in

selecting species and in developing silviculture and markets, and certifi cation, which will

improve access to niche markets and help to address environmental and sustainability

concerns (Box 9.8).

box 9.8 • timber certification

Currently, the markets for the main whole-log exports of the Pacifi c island countries have

little or no requirement for certifi cation. However, market access for high-value forest

products is likely to be increasingly predicated on some form of certifi cation in relation to

environmental stewardship.

Certifi cation schemes can be developed at the national or community level. Non-government

organisations and other agencies are already initiating certifi cation at the community level

in a number of countries. Third party mechanisms (group certifi cation) can be used to certify

a number of small enterprises that independently would not have the expertise or fi nance

to meet the costs of certifi cation. Responsibility for certifi cation of forest management for

timber production can be given to existing forest-based enterprises – for example, ones that

are engaged in the production of non-timber forest products or ecotourism.

This is also an area where a regional approach could be helpful. A regional certifi cation

body could be used for setting standards or for actual certifi cation. Existing international

standards should also be considered for use.

Source: Bond (2006) Pacifi c 2020 background paper.

Mining and petroleum

In very simple terms, the best-case scenario would be one in which further expansion of

investment in both sectors [mining and petroleum] is matched by the development of better

policy and management tools in light of past experience. The worst-case scenario would

either be one in which higher levels of investment have all sorts of negative outcomes for the

countries and people affected by it, or else one in which social, political and environmental

risks result in lower levels of investment and a lost opportunity for economic growth.

Colin Filer (2006)

The mining and petroleum sector is not typically considered in examinations of economic

growth potential across the Pacifi c. However, mining affects the development of virtually every

Pacifi c island country in some way and is important for a signifi cant minority (East Timor,

Papua New Guinea and Solomon Islands).


min

ing

Mining and petroleum projects often have a huge impact on both national and local

economies. Mining does not usually create a lot of employment, although in Papua New

Guinea the small-scale mining employs 60 000 people (including part-timers). But mining is

important because of the export earnings and government revenue it gives rise to. Just how

important can be seen from the example of East Timor. The government received an estimated

US$244 million in petroleum revenues in 2004–05, compared with GDP for the same year of

US$339 million (International Monetary Fund 2005d).

The costs associated with resource projects can range from a rise in corruption and a

breakdown in social order, to environmental devastation and large decommissioning costs,

to possible appreciation in the exchange rate leading to a lack of competitiveness. The

fundamental challenge for governments in relation to the resources sector is its effective

management. If the sector is not well managed it is quite possible that the costs will outweigh

the benefi ts.

Most Pacifi c islands mine sand and coral for use as construction material. The years to

2020 are likely to see the emergence of deep seabed mining, which will raise a number of

governance and development issues and affect a broad range of Pacifi c island countries.57

Papua New Guinea and Fiji are the major mineral-mining countries in the Pacifi c, and together

hold signifi cant reserves of nickel, gold, silver, copper and iron.58 Phosphate strip mining was

signifi cant in the past, but with poor regard for its impacts. Banaba Island was destroyed

and two-thirds of the island of Nauru was left a wasteland. The fi rst mine in Solomon Islands,

Gold Ridge, is likely to have a marked impact on the national economy when it is reopened.59

Vanuatu has issued several exploration permits, although no mining has yet occurred. Papua

New Guinea and East Timor have signifi cant oil and gas resources, and the World Bank sees

some potential for offshore oil and gas development in Fiji and Palau.

Papua New Guinea deserves special mention because it has mineral, oil and gas extractive

industries. The vast majority of its projects and prospects are located onshore, and it has been

dealing with the complex issues and challenges associated with mining for more than 30 years.

Mineral and petroleum exports have accounted for more than 50 per cent of the value of

Papua New Guinea’s exports in almost every year since independence in 1975. Once linkages

to the rest of the economy are taken into account, direct and indirect revenues from extractive

industries are estimated to account for 40–50 per cent of the national government’s total

domestic revenues.

57 There have been recent discoveries of cobalt-rich manganese nodules within the exclusive economic zones of Cook Islands and Kiribati, cobalt-rich crust within the Federated States of Micronesia, the Republic of the Marshall Islands, Kiribati and Tuvalu, and gold-bearing sulphide deposits on the sea fl oors of Fiji, Tonga and Papua New Guinea (Tuqiri 2001).

58 As does New Caledonia, though it is not covered by this report.

59 The Gold Ridge mine commenced production in 1998 following a decade of exploration. It accounted for 30 per cent of Solomon Islands’ GDP at the time of its forced closure in 1999, and will make a similar contribution for several years if it is restored to its former operating levels.

122

The key to sustainable and viable mineral and petroleum development lies in allocating

mineral revenues equitably and effectively, developing robust governance frameworks for the

extractive industries, and strengthening government administration. Change will not occur in a

vacuum, but by increasing engagement between government, industry and aid agencies.

allocating mineral revenues equitably and effectively

In the Pacifi c island countries the allocation and management of mineral revenues are fraught

with tension. Customary land rights are still fi rmly entrenched in national policy and practice

and therefore the rights of national governments to decide on the distribution of mineral

revenues are routinely challenged by landowners. The result is invariably a grossly inequitable

distribution of benefi ts and revenues between different sections of the population. Disputes

over the distribution of royalties can be very socially disruptive, and contributed to the

secession movement in Bougainville.

To ensure revenues are equitably distributed and protected from manipulation or interference,

mineral policy frameworks must clearly identify benefi ciaries at all levels and incorporate

principles that justify the pattern of distribution within the current generation.

As much attention needs to be given to how mineral rents will be used as to how they will be

allocated. The diffi culties being experienced with payments to customary land-owning groups

suggests that it would be better to provide in-kind royalty payments to these groups through

community sustainable development plans, building on successful examples from the region

(Koyama 2004). An alternative used in other parts of the world is to make payments directly

to individuals.

It also has to be decided how to manage mineral revenues in the face of fl uctuating production

levels and commodity prices, whether and how to set aside and invest a proportion of the

revenues for the benefi t of future generations, and how to protect government institutions

established for either purpose against political manipulation or interference.

Laws can mandate the saving of mineral revenues for ‘a rainy day’ or for future generations.

East Timor’s Petroleum Fund is a good, recent example of this.60 But the history of the Mineral

Resources Stabilization Fund and the Mineral Resources Development Corporation in Papua

New Guinea indicates how institutions established for the stabilisation and investment of

mineral revenues can be undone by political interference.61 Apart from reinforcing the need

to improve political governance, this experience suggests that the arrangements put in place


60 For more information on East Timor’s Petroleum Fund, go to the government’s petroleum website<www.transparency.gov.tl>.

61 The World Bank (2003b) notes: ‘A Mineral Resource Stabilization Fund (MRSF) had been set up by law in the mid-1970s with a view to insulating public expenditures from large annual swings resulting from unstable mineral revenues. But subsequent legal amendments permitted the Government of PNG to make large drawdowns from the fund as well as increase its borrowings in the capital markets against the MRSF reserves. Thus, the maintenance of surpluses in the MRSF did not curtail excessive public spending or increases in the money supply. Nor did the MRSF help smooth government revenues over economic cycles, which was one of the purposes of setting it up’.


should be structured for the worst-case scenario to guard against the risks of corruption

and political interference. Some argue that laws adopted to govern the operation of such

institutions should be constitutional, rather than ordinary ones, to make their amendment

more diffi cult.

Transparency would help promote good governance in the sector, but so far has been

conspicuous by its absence. East Timor has again set a good example by becoming the fi rst

country to sign up to the Extractive Industries Transparency Initiative, the principles of which

are set out in Box 9.9.

developing robust policy frameworks for extractive industries

The experience of Papua New Guinea over the past decade suggests that an unfriendly or

unstable fi scal regime will deter foreign investment in the mining and petroleum sector (Asian

Development Bank 2000). The recent upturn in exploration spending in Papua New Guinea is

due in part to high commodity prices but also follows an overhaul of the fi scal regime and the

introduction of fi scal stability agreements in 2000.

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box 9.9 • criteria for government compliance with the extractive industries

transparency initiative (eiti)

1 Regular publication of all material oil, gas and mining payments by companies to

governments (‘payments’) and all material revenues received by governments from

oil, gas and mining companies (‘revenues’) to a wide audience in a publicly accessible,

comprehensive and comprehensible manner.

2 Where such audits do not already exist, payments and revenues are the subject of a

credible, independent audit, applying international auditing standards.

3 Payments and revenues are reconciled by a credible, independent administrator, applying

international auditing standards and with publication of the administrator’s opinion

regarding that reconciliation including discrepancies, should any be identifi ed.

4 This approach is extended to all companies including state-owned enterprises.

5 Civil society is actively engaged as a participant in the design, monitoring and evaluation

of this process and contributes towards public debate.

6 A public, fi nancially sustainable work plan for all the above is developed by the host

government, with assistance from the international fi nancial institutions where required,

including measurable targets, a timetable for implementation, and an assessment of

potential capacity constraints.

Source: Extractive Industries Transparency Initiative <http://eitransparency.myaiweb15.com/ principlesandcriteria.htm>.


There are also some critical areas where appropriate regulation is either very weak or non-

existent. For example, the result of unregulated river, beach and foreshore extraction of sand,

gravel and rock has been substantial environmental degradation and loss of fi shery habitats.

Deep seabed mining is an important, long-term opportunity for those countries with viable

deposits of seabed minerals. Appropriate policies and legislation need to be put in place. The

fi rst challenge is to resolve defi nitional issues of their exclusive economic zones under the

United Nations Convention on the Law of the Sea as several countries have zones that could

potentially extend to areas of the continental shelf.62

The results of geological surveys, resource assessment surveys and marine scientifi c research

need to be collated, archived and made available to policy decision makers. Assessments of

lagoon and offshore resources also need to be commissioned.

strengthening sectoral administration

Government mining administrations in the Pacifi c island countries are typically underskilled,

understaffed and underfunded. They are not well equipped to deal with the demands of large

mining development projects. For example, staff numbers in the PNG Department of Mining

fell by two-thirds over a four-year period when it was the target of a World Bank institutional

strengthening project, even while mineral exploration and development expenditures

were steadily rising. Major resource projects cannot be developed without signifi cant inputs

from several different government agencies – inputs that need to be properly planned,

funded and coordinated.

Attracting and retaining the right staff is a challenge for most public services, and particularly

so in the Pacifi c island countries. Innovative approaches are called for. Mining and oil

companies are the main capacity builders in their respective industries, and industry

experience is an invaluable asset for public servants engaged in promotion or regulation. To

avoid a brain drain from the public to the private sectors, it is important to develop innovative

training schemes that facilitate more two-way traffi c between them. This could be achieved

by means of a national or regional cadetship program, established with industry and donor

support, which makes a long-term investment in training for both government agencies and

the private sector.

Where major resource projects are forecast to last for a long time and to have a signifi cant

impact on national economies, as in the case of oil and gas developments in Papua

New Guinea and East Timor, there is a case for twinning arrangements between the host

governments and the governments of developed countries such as Australia that will allow

for expertise and experience to be shared through, for example, personnel exchanges.

An alternative way for donors to build public sector capacity in developing countries is to

62 This convention provides guiding principles with regard to deep seabed mining and recognises possible extensions of boundary limits over the continental shelf areas over which marine non-living resources occur (Tuqiri 2001).


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supplement local salaries to a level that enables the recipient government to recruit its

own expatriate expertise, as was the case in Papua New Guinea when Australia provided

budgetary support.

Apart from the general need to build management capacity in relevant government

agencies, there is a more specifi c need for governments to be provided with information

about the bona fi des of potential investors in the extractive sector, and for companies to

adopt basic standards of corporate social responsibility in their operations. There is an

opportunity for industry peak bodies, regional agencies such as the South Pacifi c Applied

Geoscience Commission and international fi nancial institutions to take the lead in convening

a regional workshop or establishing a regional database that would accomplish one or both

of these objectives.

A focus on national government capacity should not detract from the need to build capacity

at lower levels of government or in communities directly affected by major resource projects if

the costs, benefi ts and revenues have to be managed at these lower levels. Given the diffi culty

of mobilising donor support for building capacity in areas that may seem to be privileged

by their possession of a major resource project, the best way to secure an outcome may be

for government policies to provide additional incentives for developers and/or civil society

organisations to do the job. Such an approach would have to take into account the different

capacity needs that exist at different stages of the resource project cycle, from exploration

through to closure and beyond (Jackson 2002).

Tourism

[Pacifi c] tourism is an activity based fi rmly on comparative advantage, making use of

resources that are abundant and accessible in the Pacifi c islands (spectacular scenery,

clean environment, hospitable cultures and people) … Both tourism and manufacturing

suffer in price competitiveness from the high transport costs associated with remote

destinations. But remoteness, contributing to rarity and pristine quality, is also one of

tourism’s selling points …

Anthony Hughes (1998, pp. 62, 63)

Nearly all of the island countries – large and small – have potential for tourism. The sector is

already of considerable importance to some of them. In 2003 the sector accounted for 47 per

cent of GDP in Cook Islands, 17 per cent in Vanuatu, 13 per cent in Fiji and 15 per cent in Kiribati

(Table 9.4). Tourist opportunities come in many different forms, from resorts to ecotourism.

Destinations, large or small, can be marketed on the basis of general attractions or unique

features. The Pacifi c has plenty of both, from beaches and sunshine to whale watching,

pearling, diving, trekking, adventure tourism, and historic and archaeological sites.

126

table 9.4 • tourism and tourist growth in pacifi c island countries

Country

Tourism as a percentage of GDP

2002

Tourism as a percentage of employment

2002

Numberof arrivals

2003

Average growth in arrivals

1995–2003

% % no. %

Melanesia

Fiji 12.8 9.5 430 800 3.8

Papua New Guinea 6.3 3.2 52 623 6.2

Solomon Islands 2.9 1.6 2 682 -16.9

Vanuatu 16.6 12.0 50 400 1.8

Polynesia

Cook Islands 47.0 … 78 328 6.2

Niue 13.0 … 2 758 3.1

Samoa 9.5 10.0 92 313 3.9

Tonga 14.7 3.2 40 110 3.9

Tuvalu 3.0 … 1 496 6.2

Micronesia

Kiribati 14.5 1.7 1 626 -10.2

Total 753 136 3.4

… Not available.

Source: South Pacifi c Tourism Organisation (2006a, 2006b).

For some Pacifi c island countries, tourism is one of their few viable sectors. It is labour

intensive (relative to other non-agricultural activities)63 and can generate a range of

entrepreneurial and employment opportunities (accountants, tour guides, handicraft

producers, etc.) for both men and women. Finally, tourism can provide a stimulus to other

parts of the economy. For example, furniture manufacturers can provide furniture for hotels.

Tourism is growing in the Pacifi c, but slowly. Arrivals are increasing by an annual average of

3 per cent. From 1999 to 2004, annual arrivals rose from 700 000 to an estimated 900 000, of

which Fiji accounted for 500 000.64 But prospects are improving. The South Pacifi c Tourism

Organisation anticipates annual growth in the range 5–8 per cent. There is certainly a lot of

room to grow, as the Pacifi c remains small as a tourist destination by global standards, even in

comparison with some islands elsewhere. The Maldives receives more than 600 000 tourists

every year. Mauritius receives over 700 000 a year, even though it deliberately focuses on the


63 Although fi gures do not appear to be available for the Pacifi c, data for Indonesia, Thailand and the Philippines show that, on an index of 1 for the economy as a whole, tourism has a labour intensity of 0.7–0.9, compared with 0.5–0.7 for all non-agricultural activities (agriculture is in the range of 2–4). See Delloite & Touche, International Institute for Environment and Overseas Development Institute (1999).

64 Though they are not covered by this report, French Polynesia and New Caledonia are also major tourist destinations, with 212 000 and 100 000 tourist arrivals in 2004 respectively. (See Table 9.4 for the source.)


top end of the market. Bali’s tourist arrivals are in excess of a million. Hawaii receives more than

7 million tourists a year. Tourist numbers in the Caribbean are counted in the tens of millions.

Tourism needs to be driven by the private sector. No one would suggest that governments

should operate hotels. However, if the industry is to grow, governments are going to have to do

much more. Most importantly, they have to address a number of constraints that are external

to the sector. They also need to develop national tourism policies, support tourism-related

training and improve marketing and data.

addressing external constraints

As with the other sectors, the crosscutting constraints analysed in the previous chapter

emerged as important for tourism. In some countries, land tenure problems need to be

addressed if new tourist sites are to be developed. Foreign investment needs to be welcomed.

Three external constraints that are particularly important for tourism concern infrastructure,

law and order, and health.

No infrastructure policy is more important for tourism than aviation. Air services bring the

bulk of the region’s tourists and tourism revenue. Getting to the Pacifi c has to be made easier

and cheaper. This can be done by running the sector along more commercial and competitive

lines, as articulated by Forum Principles on Regional Transport Services, which were adopted

in 2004.65 As Box 9.10 relates, recent experience in Vanuatu suggests the benefi ts for tourism

from aviation deregulation can be substantial.

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65 For details, go to the Pacifi c Islands Forum Secretariat website <http://www.forumsec.org.fj/docs/Pacifi c_RTS/PRTS%20Principles.pdf>.

box 9.10 • airline deregulation boosts tourism: the example of vanuatu

In 1999, Pacifi c island aviation ministers agreed in principle to the concept of a single Pacifi c

islands aviation market. Current signatories to the Pacifi c Islands Air Services Agreement

are Cook Islands, Nauru, Samoa, Tonga and Vanuatu. Protecting national carriers is one of

the key reasons more countries, in particular Fiji, have not yet signed up to this agreement.

In the interim, some countries are already moving ahead with unilateral liberalisation.

Vanuatu ended Air Vanuatu’s monopoly in 2003, and Pacifi c Blue commenced fl ights from

Brisbane to Port Vila in September 2004. By September 2005, Pacifi c Blue carried over

25 per cent of passengers going to Port Vila and visitor arrivals had increased by 9 per cent

in the year ending in September.

With the growth of low-cost carriers – not only Pacifi c Blue, but also Air New Zealand’s

Pacifi c Express and the Samoa and Virgin Blue joint venture, Polynesian Blue – the tourism

benefi ts of deregulating air travel have greatly increased.

Sources: Bureau of Transport and Regional Economics (2006); Vanuatu National Statistics Offi ce.

128

Tourism provides plenty of opportunities for the private sector to provide domestic

infrastructure. This is a strategy the Maldives has used, by giving resorts long-term leases

and then making them responsible for providing not only power and water, but roads and

inter-island sea transport. Where self-provision is not an option, tourism operators need

to be made responsible for their water, waste management and other costs, through user-pays

mechanisms.

Rampant crime will cripple tourism. Papua New Guinea is well situated for tourists from

Australia and Asia, and has many potential tourist attractions. That it attracts only a trickle

of tourists is due largely to high crime levels (Levantis 1998). The threat of national-level

instability or violence also deters tourists. Following the second coup in Fiji, tourist arrivals fell

by 30 per cent.

Health threats will deter all but the most hardy tourists. Solomon Islands’ status as the

world’s most malaria-prone country is one of a number of constraints holding tourism back

in that country.

Governments can make no greater contribution to tourism than to provide good infrastructure,

and guarantee travellers a good chance of a safe and healthy stay.

building coordinated national tourism policies

As is evident from the above, developing tourism requires cross-sectoral coordination. There

may be trade-offs between tourism and fi shing, or tourism and mining. It is also important to

explore how all stakeholders involved in the sector can voice their priorities and concerns. At

the Pacifi c 2020 roundtable on tourism participants expressed concerns about the impact of

the sector on local culture and behaviours and on the environment, and about risks of sexual

exploitation. These are valid concerns and there must be appropriate avenues to air them and

to foster consensus on the way forward.

providing training for tourism

Governments need to take an interest in the training of local people to work in tourism sectors.

A trained workforce with strong customer orientation is essential to deliver high-quality

products and tourist experiences. There is a shortage of skilled staff and trained managers in

some parts of the Pacifi c, and industry training will remain an important issue as the numbers

of hotel rooms and tours increase. Governments need to recognise that tourism and hospitality

training is an investment that must be supported through technical and vocational training

courses and scholarships (see the discussion in the section on labour in Chapter 8). To realise

economies of scale, such training could be provided at the regional level.



collecting information and marketing destinations

While individual operators will promote their own destinations, governments and industry

have a joint responsibility for promoting national (or regional) brands and for collecting

sectoral information. National and regional marketing is already undertaken, though some

consider it underfunded.

A number of measures can be taken to improve the information base for tourism. The

information collected by immigration ministries on visitor arrival cards offers a valuable source

of time series data on tourists and demographics. Visitor surveys are a valuable planning tool

that can yield detailed information on visitor activities, attitudes and expenditure. These are

already used by some countries and could be adopted by national tourism offi ces across the

region. Case studies can usefully demonstrate the impact of tourism on individual citizens in

their daily lives, and inform awareness campaigns aimed at public offi cials, schools, tourism

operators and the general community.

Studies of how backward linkages can be improved – for example, studies of why hotels are not

using domestically produced food – could help to expand and spread the benefi ts of tourism.

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131Pacifi c 2020

annex a

Contributors to Pacifi c 2020

This annex acknowledges the people who have been involved in the Pacifi c 2020 project.

The views and policies expressed in the report do not necessarily represent the views of any

sponsoring individual and/or organisation involved in the project.

Steering committee

The Pacifi c 2020 project was directed by a Steering Committee of leading regional fi gures and

senior AusAID offi cials.

Judith Robinson (Chair) Assistant Director General, Pacifi c Branch, AusAID

Brown Bai Chairman, Rural Industries Council, Papua New Guinea

Helder Da Costa Programme Manager (Asia), Volunteer Services Abroad

Jacqui De Lacy (Former) Assistant Director General, Papua New Guinea Branch, AusAID

Taukelina Finikaso Secretary, Ministry of Home Affairs and Rural Development, Tuvalu

Geoffrey Fox Principal Adviser, Rural Development, AusAID

James Gilling Principal Adviser, Aid Effectiveness, AusAID

Iosefa Maiava Deputy Secretary General, Pacifi c Islands Forum Secretariat

Hinauri Petana Chief Executive, Ministry of Finance, Government of Samoa

Jimmie Rodgers Director General, Secretariat of the Pacifi c Community

Peter Versegi Head, Secretariat, Australian White Paper on Aid, AusAID

Eric Bell Adviser, Economic Management and Poverty Reduction, AusAID

AusAID East Timor Section was also represented at Steering Committee meetings.

Input papers

The following sectoral experts prepared the input papers to stimulate debate in the nine Pacifi c

2020 growth topics.

Investment and private sector development, Paul Holden, Director, Enterprise Research

Institute, Washington DC

Employment and labour markets, Manjula Luthria, Senior Economist, Pacifi c Islands

Operations, World Bank

132

Land, Spike Boydell, Department of Land, Management and Development, University of the

South Pacifi c

Political governance, Cedric Saldanha, Development Consultant

Agriculture, Andrew MacGregor, Managing Director, Trade and Development Offi ce, Fiji

Fisheries, Les Clark, Partner, Ray Research, Fisheries Management and Development Specialist

Forestry, Andrew Bond, Forestry and Environment Consultant

Mining and petroleum, Colin Filer, Convenor, Resource Management in Asia-Pacifi c Program,

Research School of Pacifi c and Asian Studies, Australian National University

Tourism, Alison Allcock, Pacifi c Tourism Adviser, AusAID

Roundtable meetings

A series of roundtable discussions on each of the growth topics was the primary source of

the policy options and broad themes contained in the report. More than 130 practitioners and

experts from regional government, the private sector and civil society, as well as representatives

from donors and multilateral institutions attended the following roundtables meetings.

investment and private sector development, 30 june 2005, sydney

Rob Stewart (Chair), Johanne Wright (Facilitator), Naomi Chakwin, Alec Chang, Florence Fenton,

Nemezio Fernandes, Geoffrey Fox, Jackson Henry, Paul Holden, Winifred Kamit,

Sione Ngongo Kioa, Jerry Kramer, Leota L Lamositele-Sio, James Movick, Russell Muir,

Peter Murphy, Frank Yourn

employment and labour markets, 20 july 2005, canberra

Peter Hooton (Chair), Robyn Renneberg (Facilitator), Larry Adams, Eric Bell, Rebecca Gibb,

Aurelio Guterres, Michael Hess, Ephraim Kalsakau, Manjula Luthria, Robert Lyon, Rona Nadile,

Ethel Sigimanu, Chris Tinning, Peter Tong, Caroline Tupoulahi-Fusimalohi, Johnson Wabaiat,

David Wheen

land, 29 june 2005, sydney

Andrew Pope (Chair), Lyla Rogan (Facilitator), Spike Boydell, Tony Burns, Jim Fingleton,

Geoffrey Fox, Eric Gorapava, Jackson Henry, Hartmut Holzknecht, Tarcisius Tara Kabutaulaka,

Padma Lal, Leota L Lamositele-Sio, Ahohiva Levi, Rod Little, Russel Nari, Alec Rukia, Aleki Sisifa,

Semi Tabakanalagi, Tuala Sale Tagaloa, Charles Yala

Pacifi c 2020 • annex a

133

political governance, 6 july 2005, sydney

Peter Hooton (Chair), Lyla Rogan (Facilitator), Peter Aitsi, Tos Barnett, Mark Bebe,

Lionel Gibson, David Hegarty, Rick Hou, Henry Ivarature, Hilda Kari, Langi Kavaliku,

David Kavanamur, Milena Pires, Cedric Saldanha, Orovu Sepoe, Chris Tinning,

Afamasaga Faamatala Toleafoa, Garry Wiseman

agriculture, 5 july 2005, sydney

Charles Tapp (Chair), Robyn Renneberg (Facilitator), Mike Bourke, Geoffrey Fox, John Harunari,

Greg Johnson, KP Kunhamboo Kannan, Sant Kumar, Andrew MacGregor, Michael Manning,

Laisene Samuelu, Aleki Sisifa, Ted Sitapai, Morgan Wairiu

fi sheries, 29 june 2005, brisbane

Geoff Dews (Chair), Robyn Renneberg (Facilitator), Jon Barnett, Dennis Bebego, Les Clark,

Thomas Gloerfelt-Tarp, Glenn Hurry, Sue Kelly, Tony Lewis, Alistair McIlgorm, Arthur Medson,

James Movick, Tau Pasisi, Barney Smith, Feleti Teo, Aliti Vunisea, Paul Wallis

forestry, 28 june 2005, sydney

Judith Robinson (Chair), Johanne Wright (Facilitator), Tos Barnett, Andrew Bond, Sairusi Bulai,

Alec Chang, Geoffrey Fox, Russel Haines, Kanawi Pouru, Mugliagatele Reti, Luca Tacconi,

Otheniel Tangianau, Randy Thaman, Lex Thomson

mining and petroleum, 14 july 2005, sydney

Steve Darvill (Chair), Lyla Rogan (Facilitator), Greg Anderson, David Brereton, Peter Cockcroft,

John Davies, Colin Filer, Cristino Gusmao, Robert Igara, Graeme Hancock, Del Pangelinan,

Bhaskar Rao, Craig Sugden, Ila Temu, Robert Tulip

tourism, 21 july 2005 , suva, fi ji

Stephanie Copus-Campbell (Chair), Johanne Wright (Facilitator), Lisiate ‘Akolo, Alison Allcock,

Spike Boydell, Ross Bray, Chris Flynn, Bill Gavoka, David Harrison, Ross Hopkins,

Sealiimalietoa Melepone Isara, David Kera, Philip Malas, Zita Sefo-Martel, Charlie Panakera,

John Perrottet, Ramsey Reimers, Christina (Kiki) Stinnett, Sakiusa Tuisolia, Peter Vincent,

Timoci Waqaisavou


134

Background papers

The following authors were commissioned to produce background papers to refl ect and

develop the issues raised at the roundtable meetings, as well as incorporate comprehensive

peer review comments.

Investment and private sector development, Paul Holden, Director, Enterprise Research

Institute, Washington DC

Employment and labour markets, Michael Hess, School of Management,

University of Tasmania

Land, Jim Fingleton, Development Law Consultant

Political governance, Cedric Saldanha, Development Consultant

Agriculture, Andrew MacGregor, Managing Director, Trade and Development Offi ce, Fiji

Fisheries, Les Clark, Partner, Ray Research, Fisheries Management and Development Specialist

Forestry, Andrew Bond, Forestry and Environment Consultant

Mining and petroleum, Colin Filer, Convenor, Resource Management in Asia-Pacifi c Program,

Research School of Pacifi c and Asian Studies, Australian National University

Tourism, Alison Allcock, Pacifi c Tourism Adviser, AusAID

The following additional background papers and commissioned work have also contributed to

Pacifi c 2020.

Framework for growth, Manjula Luthria, Senior Economist for the East Asia and Pacifi c Region,

World Bank, and Sanjay Dhar, Lead Economist for the East Asia and Pacifi c Region, World Bank

Report on regional agreements, Pacifi c and Assistance Division, Australian Treasury

History of growth, Mahendra Reddy, Senior Lecturer, Development Economics, Development

Studies Program, University of the South Pacifi c

Statistical projections, Satish Chand, Associate Professor, Asia Pacifi c School of Economics

and Government, Australian National University


135

Pacifi c 2020 report

The following authors developed the fi nal report.

principal author

Stephen Howes, Principal Economist, AusAID

contributors

Eric Bell, Adviser, Economic Management and Poverty Reduction, AusAID

Geoffrey Fox, Principal Adviser, Rural Development, AusAID

James Gilling, Principal Adviser, Aid Effectiveness, AusAID

Lynn Pieper, Development Consultant

Peer review

Pacifi c 2020 analyses have had a comprehensive peer review, drawing on expertise in

the region as well as within donor agencies, international fi nancial institutions and the

Australian Government, including experts from: the Asian Development Bank; Association

of South Pacifi c Airlines; Auckland Institute of Studies; Australian Centre for International

Agricultural Research; Australian Department of Agriculture, Forestry and Fisheries; Australian

Department of Foreign Affairs and Trade; Australian Department of Industry, Tourism and

Resources; Australian Fisheries Management Authority; Australian National University;

Australian Treasury; Cook Islands Tourism Authority; Enterprise Research Institute; European

Commission; Food and Agriculture Organization Sub Regional Offi ce for the Pacifi c Islands;

Foreign and Commonwealth Offi ce of the United Kingdom; International Finance Corporation

Foreign Investment Advisory Service; Deutsche Gesellschaft für Technische Zusammenarbeit

GmbH; International Fund for Agricultural Development; International Monetary Fund; National

Research Institute (Papua New Guinea); New Zealand Agency for International Development;

New Zealand Treasury; Offi ce of National Assessments (Australia); Pacifi c Islands Forum

Fisheries Agency; Pacifi c Islands Forum Secretariat; Placer Dome; Secretariat of the Pacifi c

Community; South Pacifi c Applied Geoscience Commission; United Nations Economic and

Social Commission for Asia and the Pacifi c, Pacifi c Operations Center; University of Adelaide;

University of the South Pacifi c; University of Tasmania; University of Western Australia; Victoria

University of Wellington; Macquarie University; World Bank.


136

Pacifi c 2020 Working Group

The Pacifi c 2020 process has been supported by a secretariat consisting of AusAID Directors

and research and support staff: Peter O’Connor, Mary Sertich, Andrea Cole, Stephen Fisher,

Chris Tinning, Rachel Payne, Bronwyn Taylor, Andrew Pope and Christine Groeger.

AusAID posted offi cers deserve a special mention for their assistance throughout the

Pacifi c 2020 process.


137

annex b

Importance of the productive sectors to the Pacifi c island countries

Land area (EEZ) a

Population b

(2004)Geographic type

Importance of agricultural sector

Importance of forestry sector

Importance of fi sheries sector

Importance of tourism sector

Importance of mining and petroleum sector c

km2 ’000

Cook Islands

180(1 830 000)

20.3 High islands and atolls.

Important – for subsistence (a signifi cant component of GDP) and as main export earner.

Important – for subsistence and for watershed protection and soil conservation.

Important – for subsistence and domestic longline fi shing. Pearl farming is major export earner.

Very important. Tourism is estimated to contribute almost 50 per cent of GDP. About 85 per cent of arrivals are holiday visitors.

No known on-land mineral or petroleum resources. Extensive known deposits of polymetallic (manganese) nodules within EEZ.

Federated States of Micronesia

702(3 016 000)

108 High islands and atolls.

Some – small export earnings, some domestic cash income, and some subsistence.

Important – for subsistence and for watershed and coastal protection.

Tuna is main export earner. Fishing grounds for foreign fl eets provide signifi cant revenue.

Little or no data on arrivals, duration of stay or expenditure.

No known on-land mineral resources. Cobalt and polymetallic crusts on seamounts within EEZ.

East Timor

18 900…

925 Mountainous, with coastal plain.

Fundamental. Most of the population depends on subsistence agriculture, coffee being the main non-oil export earner.

Important – for subsistence (high reliance on forest products for fi rewood and building materials). Small export industry. Potential for expansion of smallholder agroforestry.

Important – for subsistence. Income potential from access if poaching can be controlled.

Low but expected to increase as tourism forms part of the reconstruction plan.

Oil and gas, particularly gas, are signifi cant contributors to the economy. Signifi cant offshore (hydrocarbon) and onshore (mineral) potential.

Fiji

18 376(1 290 000)

840 High islands and a few minor atolls.

Fundamental – for subsistence (a signifi cant proportion of GDP) and as main employer and net foreign exchange earner.

Important – for export earnings, domestic market and subsistence.

Less important than agriculture, but signifi cant. Pioneer of longlining and tuna canning. Important for subsistence. Aquarium fi sh exports are becoming big.

Signifi cant. Has relatively good infrastructure and services, but suffered from the coups of 1987 and 2000.

Relatively small contribution to GDP. One operating mine but has signifi cant on-land and offshore (EEZ) potential for minerals and hydrocarbons.

Pacifi c 2020

138

Land area (EEZ) a

Population b







km2 ’000

Kiribati

726(3 463 800)

89.7 Predominately atolls.

Considerable – for subsistence. Copra important for outer island cash income and some foreign exchange.

Some – for subsistence and for coastal protection.

Reef is fundamental for subsistence. Very high dependence on tuna fi shing access fee revenue. Seaweed farming is important for cash earnings on outer islands.

Important. Most tourism activity involves fi shing, diving and cruise shipping around Christmas Island. Very small number of tourist arrivals and rooms available but tourism is estimated at almost 14 per cent of GDP.

Phosphate (Guano) deposits mined from Banaba in the 1900s. Operations now closed.


720(2 131 000)

61.2 Atolls. Limited. Some subsistence and income earned from copra.


Signifi cant – for subsistence and for foreign access revenues. Emphasis on benefi ting from servicing foreign fl eets, with some domestic commercial operations.

Limited – low levels of awareness of Marshall Islands. Possible oversupply of accommodation.

No mining or petroleum activity. Principally aggregate extraction on coastal margin and reef.

Nauru

21(320 000)

10 (2001) Raised coral island.

Insignifi cant. Limited – for subsistence and for rehabilitation of degraded lands.

Limited – reef area now heavily fi shed for subsistence. Limited domestic commercial prospects. Signifi cant tuna access fee revenue.

Some – for business travel. Phosphate (Guano) deposits mined from Nauru in the 1900s. Operations now largely closed except for stockpiles.

Niue

258(390 000)

1.8 (2001) Raised coral island.

Signifi cant – for subsistence and some root crop exports.

Some – for subsistence and for biodiversity protection.

Some signifi cance – for subsistence and sport fi sheries. Major new onshore tuna processing facility recently opened.

Important. Tourism is estimated to contribute 13 per cent of GDP. Focus is on business travellers and visiting friends and relatives.

No mining or petroleum activity. Minor exploration activity for uranium.

Pacifi c 2020 • ann

ex b

139

Land area (EEZ) a

Population b







km2 ’000

Palau

475(592 750)

20.6 High islands and atolls.

Some – market gardening. Some – for subsistence and for watershed and coastal protection.

Strong – for subsistence and for income from exports of reef fi sh to Guam and access fees for tuna. Close to Asian markets. Concern about overexploitation.

Signifi cant – contributes an estimated 49 per cent of GDP. Good access to Asian markets.

No mining or petroleum activity.

Papua New Guinea

461 690(3 120 000)

5800 High islands and a few small atolls.

Fundamental – for subsistence (a signifi cant component of GDP). Overwhelming source of employment. Provides a signifi cant proportion of net export earnings.

Very important – for export earnings, domestic market and subsistence.

Large by Pacifi c island standards, but relatively unimportant in national economy compared with land resources. Highly developed fi sheries management systems, processing, and productive shelf fi sheries.

Modest – most visitors are on business. Holiday market remains soft and has a signifi cant image problem.

Signifi cant contribution to economy from mining (gold, copper) and hydrocarbons (gas and minor petroleum). Signifi cant future potential. Extensive prospects also within EEZ.

Samoa

2 934(130 900)

180.9 High islands. Fundamental. Traditional agriculture is the underlying strength of economy.

Important – for domestic income, subsistence and watershed protection.

Important. Strong subsistence fi shery and dynamic small-scale tuna fi shing for American Samoa cannery. Small EEZ and limited reef.

Important – particularly visiting friends and relatives. Likely to expand with the establishment of Polynesian Blue and new accommodation.

No mining or petroleum activity.

Solomon Islands

29 785(1 340 000)

521 High islands and a few atolls.

Fundamental – for subsistence (a signifi cant component of GDP). Overwhelming source of employment. Provides a substantial proportion of net export earnings.

Very – for export earnings, domestic market and subsistence.

Extremely – for domestic tuna fi shing and processing industries plus access fees. Fundamental – for subsistence. Large fi shery zone and reef area.

Important. Slowly recovering after the political tensions. Government is now developing supportive tourism policy.

Signifi cant potential. Gold Ridge mine on Guadalcanal is currently closed. Principal prospects are in gold, copper, nickel and offshore hydrocarbons.


ex b

140

Land area (EEZ) a

Population b







km2 ’000

Tonga

696(700 000)

101.8 High islands and a few small atolls.

Fundamental – agricultural-led economic growth in recent past.

Important – for some exports, subsistence and watershed protection.

Probably less important than agriculture. Important for subsistence. Many commercial development trials, but few fully sustainable.

Very signifi cant – supportive government.

No current activity but potential exists for offshore hydrocarbon deposits and for polymetallic mineral deposits within EEZ (Lau Basin).

Tuvalu

26(900 000)

11.2 Atolls. Some – for subsistence and for cash income from copra.


Signifi cant. Highly dependent on income from tuna access fees, and on reef for subsistence. The most fi shery-dependent Pacifi c island country.

Limited. Low numbers of visitors, poor access, possibly as few as 75 rooms available.

No mining or petroleum activity. Possible polymetallic deposits within EEZ.

Vanuatu

12 189(680 000)

213.3 High islands and a few small atolls.

Fundamental – for subsistence (a signifi cant component of GDP). Overwhelming source of employment. Provides a substantial proportion of net export earnings.

Important – for export earnings, domestic market and subsistence.

Important – for subsistence. Commercial fi sheries relatively limited. Strong potential for domestic tuna development. Signifi cant distant water fi shing nation in other oceans through open registry.

Signifi cant. Relatively stable sector and well marketed.

No mining or petroleum activity. Current exploration activity. Potential for both minerals and hydrocarbons on land and within EEZ.

a EEZ based on data from the South Pacifi c Community and data from chart areas from the South Pacifi c Applied Geoscience Commission, not offi cial fi gures <http://www.spc.int/coastfi sh/Countries/countries.htm>. b Population data from the Asian Development Bank (2005d). c Sand and aggregate mining for building purposes occurs throughout the region. However, statistics on production and use are largely unavailable (source: Pacifi c Plan). … Not available.

Sources: Agriculture – Andrew McGregor; forestry and fi sheries – Secretariat of the Pacifi c Community; tourism – Allison Allcock; mining and petroleum – South Pacifi c Applied Geoscience Commission.


ex b

141Pacifi c 2020

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152

Credits

Pacifi c 2020

cover

Palm leaf

© Jean-Bernard Carillet,Lonely Planet Images

chapter six

Road works along the Highlands Highway, Papua New Guinea

Photo courtesy of AusAID

chapter two

Tourism in the Pacifi c

AAP/ Richard Durham© 2004 AAP

chapter seven

Reforestation worker, Solomon Islands

© Peter Solness,Lonely Planet Images

chapter three

Houses in the suburbs of Port Moresby, Papua New Guinea

© Jacky Ghossein/ Fairfaxphotos

chapter eight

Student from the Tuvalu Maritime Training Institute, Tuvalu

© Peter B. Bennetts,Lonely Planet Images

chapter four

Jack Macherel

AAP/Neil Vincent © 2005 AAP

chapter nine

Ngali nuts, Solomon Islands

© Peter Solness,Lonely Planet Images

annexes

Children in East Timor

Photo courtesy of AusAID

chapter fi ve

Woman working at a pepper factory, Federated States of Micronesia

© Nik Wheeler/CORBIS/APL

chapter one

Students from the Nuku’alofa Girls High School, Tonga

© Peter Hendrie,Lonely Planet Images

The countries of the Pacifi c, including Papua New Guinea and near neighbour East Timor,

face daunting challenges. These countries suffer from high unemployment and joblessness.

Some suffer from social or political instability, or serious crime. Others face daunting health

or environmental challenges. What does the future hold for the Pacifi c island countries?

And what can be done today to improve their prospects?

Pacifi c 2020 aims to answer these questions. It shows that, without accelerated and

sustained economic growth, the region will not be able to confront the challenges of

the future. Based on extensive consultation with regional experts, the report highlights

constraints to growth, and suggests reform options that will assist Pacifi c nations onto

a sustainable growth path.

Pacifi c 2020 provides practical policy guidance for the Pacifi c island countries on realising

opportunities and managing challenges in nine critical growth areas:

• four crosscutting growth factors – private sector investment, land, labour and political

governance, and

• fi ve important sectors of their economies – agriculture, fi sheries, forestry, mining and

petroleum, and tourism.

Pacifi c 2020 is a call to action. It aims to stimulate dialogue and debate on growth in the

island countries. It is also a resource for the governments of the region, and for all who

want to promote sustainable growth and a better future for the Pacifi c island peoples.